EDITORIAL: Federal Finance Minister Muhammad Aurangzeb while talking to the press after delivering a keynote address at a seminar titled “Leaders in Islamabad Business Summit 2024 collaborating for Growth” noted that foreign exchange reserves would rise to between 9 and 10 billion dollars, an amount that takes into account the 8054.7 million dollars held by the State Bank of Pakistan on 12 April 2024 as well as the disbursement of the final tranche of the Stand-By Arrangement of the International Monetary Fund (IMF) of 1.1 billion dollars. While this amount is a vast improvement on the 3678.4 million dollars available on 20 January 2023 yet two observations are critical.
First, the bulk of the reserves are sourced to bilaterals with 7 billion dollars’ deposit extension by friendly countries for one year – Saudi Arabia’s contribution of 3 billion dollars rolled over till 1st December 2024, the United Arab Emirates agreed to roll over 2 billion dollars in January 2024 and China’s 2 billion dollars rolled over in February 2024.
These extensions were critical for the government to convince the IMF mission to reengage with Pakistan to reach an agreement on the then pending ninth review of the Extended Fund Facility programme, together with the abandonment of the policy to artificially control the rupee-dollar parity. Failure to reach an agreement at the time was attributed to exerting control over the external value of the rupee. The cost to the economy for deposits by these friendly countries was 26.6 billion rupees in interest last fiscal year.
Be that as it may, the requirement for foreign exchange from March 2024 to November 2024 as per the State Bank of Pakistan (SBP) is 19.71 billion dollars – an amount that is not likely to be met with the two desired sources of foreign exchange inflows; notably, from a possible trade surplus and remittance inflows.
July-March 2024 trade deficit declined to 17.030 billion dollars against 22.68 billion dollars in the comparable period of the year before though it is concerning that the March 2024 trade deficit widened by 56.30 percent to 2.171 billion dollars against 1.389 billion dollars during the same month in 2023.
Remittances also rose July-March 2024 compared to the year before – from 20.844 billion dollars to 21.036 billion dollars this year or a rise of though in this instance the March inflows this year rise of under one percentage point though it rose by a whopping 31.2 percentage in March 2024 when compared to March 2023.
This data released by the SBP and the Pakistan Bureau of Statistics indicates that the Finance Minister’s contention that there is no ‘Plan B’ and the government is seeking a larger and longer IMF loan must be fully supported.
Aurangzeb then went on to say that once the programme loan with the Fund is agreed the government will enter the execution mode to jack up tax-to-GDP ratio, fix cash bleeding of the energy sector, reform the state-owned entities and privatise PIA and other loss-making units. While these pledges were made in the past by all administrations as well, but never implemented given the considerable political cost they entail yet this time around it appears as if there is more gravitas to the vow.
And this is reflected by an exclusive Business Recorder report detailing the formation of a seven-member committee last month by the Prime Minister, notified on 11th March, with the terms of reference to take note of all previous reports commissioned so far, inclusive of National Austerity Committee recommendations and formulate measures aimed at reducing expenditure, inclusive of the introduction of a contributory pension scheme for future retirees, seeking provincial contribution for development schemes and Benazir Income Support Programme.
While the Finance Minister was not a member of the seven-member committee, no doubt to allow him to focus on the myriad economic problems facing the country today; however, appropriately Secretary Finance was a member.
One would have hoped that the Prime Minister had not excluded defence, civil armed forces, police from the purview of this committee as a one to two-year sacrifice is required from all recipients of current expenditure as it is not going to be easy to steer the economy out of its current impasse and will require more borrowing from external sources coupled with a massive decline in expenditure for such measures alone would pave to achieve economic stability.
Copyright Business Recorder, 2024
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