Pakistan is absolutely going to make each and every payment: Miftah Ismail

Finance Minister Miftah Ismail on Monday reiterated that Pakistan would meet all its payment obligations as its funding needs remain fully met.

“Everything is settled now,” said Miftah during a phone interview with Bloomberg. “Pakistan is absolutely going to make each and every payment and each and every bond.”

The statement comes just days after the acting governor of State Bank of Pakistan (SBP) Dr Murtaza Syed said that Pakistan's $33.5-billion external financing needs are fully met for financial year 2022/23.

"Our external financing needs over the next 12 months are fully met, underpinned by our on-going IMF programme," Dr Syed had said.

On July 14, the International Monetary Fund (IMF) announced its staff-level agreement with Pakistan authorities for the disbursement of $1.17 billion in critical funding under resumed payments of a bailout package.

While crucial, the IMF disbursement is not nearly enough for Pakistan's external financing needs that have been estimated to top $34 billion. With foreign exchange reserves hitting critical levels, Pakistan's economic policymakers have been desperately scrambling to secure dollar-inflows with finance minister repeatedly allaying concerns that the country would meet all its obligations.

During his phone interview, Miftah said Pakistan has averted the risk of default, thanks to progress on a stalled IMF programme loan, followed by government measures including spending cuts.

“With the commodity super cycle and Russia-Ukraine war, oil prices skyrocketing and gas going as high as they have ever been in history, Pakistan and other emerging countries have been facing the worst crisis,” he said. “Nonetheless, Pakistan – by having an IMF programme, introducing a significant tight budget and depressing demand for imports – has weathered the storm.”

On Sunday, Miftah had said that the government’s efforts to reduce imports have finally borne fruit and the country’s import bill has decreased by $2.7 billion as the country imported goods worth $5 billion only in July as compared to $7.7 billion in the previous month (June).

He said dollar inflows are expected to improve in coming weeks, whereas the decline in import bill would help alleviate pressure on the local currency that lost 14.5% in July, the largest monthly drop in over 50 years.

The Ministry of Finance and the central bank in a joint statement on Sunday night also said that rupee has overshot to the downside temporarily but is expected to appreciate in line with fundamentals over the next few months.

“Around half of the Rupee depreciation since December 2021 can be attributed to the global surge in the US dollar, following historic tightening by the Federal Reserve and heightened risk aversion,” read a joint-statement on the current economic challenges and Pakistan’s strategy for this fiscal year (FY23).

“Of the remaining half, some is driven by domestic fundamentals, in particular, the widening of the current account deficit, especially in the last few months … the remaining depreciation has been overdone and driven by sentiment."

The authorities further dismissed rumors suggesting that a particular level of the exchange rate has been agreed with the International Monetary Fund (IMF), terming it “completely unfounded”.

“The exchange rate is flexible and market-determined, and will remain so, but any disorderly movements are being countered,” it said.

“The Rupee can overshoot temporarily as it has done recently. However, it moves both ways over time. We expect this pattern to re-assert itself in the coming period. As a result, the Rupee should strengthen in line with improved fundamentals in the form of a smaller current account deficit as well as stronger sentiment,” read the statement, a rare occurrence of a joint announcement by the finance ministry and SBP.

The rupee appreciated marginally on Monday, with the currency closing at 238.84 against the US dollar in the inter-bank market. The gain in the open market, however, was more substantial.