EDITORIAL: Prime Minister Shehbaz Sharif, while addressing a lawyers’ convention in Islamabad, acknowledged that even friendly countries are fatigued by constant requests by Pakistan for aid. This admission on the back of the State Bank of Pakistan (SBP) website itemizing foreign exchange reserves at 8.799 billion dollars on 2 September 2022, with no further updates to-date, against 7.697 billion dollars on 26 August 2022, reflecting the disbursement of the tranche by the International Monetary Fund (IMF) is a source of serious concern for two reasons.
First, the ongoing IMF Extended Fund Facility programme condition presupposes funding from friendly countries itemized in the seventh/eighth review documents for fiscal year 2023 as “official financing includes 7 billion US dollars as rollovers of existing and 4 billion US dollars in additional financing commitments including from China, Qatar, Saudi Arabia, the UAE and International Financial Institutions (such as the World Bank, Asian Development Bank and Islamic Development Bank).”
The obvious question is whether the 8.799 billion dollars includes the 7 billion dollars rollover, which would indicate that almost the entire reserves are from borrowed funds or whether the decision to roll over remains pending.
And secondly, Finance Minister Miftah Ismail is on record as claiming that in addition to the rollover, 4 billion dollars has been pledged by friendly countries, a claim confirmed in the Monetary Policy Statement (MPS) dated 23 August, which noted, among other things, that: “the Board meeting on the ongoing review under the IMF programme will take place on August 29th and is expected to release a further tranche of $1.2 billion, as well as catalyzing financing from multilateral and bilateral lenders. In addition,
Pakistan has also successfully secured an additional $4 billion from friendly countries over and above its external financing needs in FY23.
As a result, foreign exchange reserves will be further augmented through the course of the year, helping to reduce external vulnerability.” The MPS was correct in the date of the IMF Board meeting though the disbursement was about 1.1 billion dollars as per the Fund instead of 1.2 billion dollars while the 4 billion dollar additional assistance has yet to be disbursed that is no doubt a major reason for the continued rupee erosion.
The Economic Affairs Division uploads data of total external loans/grants disbursements on a monthly basis by the third week of every month and hence the August figures are not yet available. However, the uploaded data for July 2022 gives total inflows at 185.6 million dollars.
The IMF in its latest review documents indicates that a total of 3.667 billion dollars are projected disbursements for July-September 2022 of which cash amounts to 3.485 billion dollars (with IMF accounting for 1.1 billion dollars) that includes Saudi oil facility of 928 million dollars, international bond issuance of 200 million dollars and commercial borrowing of 415 million dollars. Withholding the release of data has raised concerns whether the non-cash transfers have materialised or not.
Failure to meet the first quarterly targets of the current year would make the task of meeting the second quarter projected targets of 7.558 billion dollars all the more challenging with 2.449 billion dollars earmarked under commercial borrowing which explains the Fund’s ominous assessment that “financing risks remain exceptionally high arising from large public sector external roll over needs (estimated at 21 billion dollars by the Minister of Finance), the still sizeable current account deficit, difficult external environment for Eurobond issuance given recent downgrades and high spreads, and limited reserve buffers to help cover the financing needs in case of delays in scheduled inflows.”
Add to that the devastation caused by the floods that have massively slashed farm output estimates while increasing the need for urgent rescue and relief assistance for the victims, leave alone the rehabilitation costs in the near future, and one is compelled to ask the Finance Minister as to when he would deem it prudent to engage the Fund on the flood situation in the country.
We are mindful and acknowledge that these are extremely difficult times for Pakistan from an economic perspective but at the same time the economic team leaders have done no out-of-the-box thinking as current budgeted expenditures were raised by a trillion rupees at a time when there was an urgent need to at least contain them to last year’s levels while diverting development expenditure, this time for flood relief, has been the usual practice in past years. To accept all Fund conditionalities while staying mum on the extent of the floods that had already impacted on the economy before the seventh/eighth review was declared a success is baffling.
And to insist in almost daily media interactions that the country has been saved from default, a claim premised on rollovers and additional borrowing from friendly countries, pledges that as mentioned above have yet to be met, epitomizes a mindset that is focused on politics rather than on economics and whose cost is being borne by the general public. This situation is simply not tenable for long and one would hope that the Cabinet revisits its economic policies without any further loss of time.
Copyright Business Recorder, 2022