Foreign exchange reserves sufficient to cater debt servicing, import liabilities

ISLAMABAD: Current foreign exchange reserves were sufficient to cater for debt servicing and import liabilities, a Finance Ministry spokesman said in a Friday.

Clarifying a news item titled "Pakistan's net reserves stand a minus $724 million" published in a section of press, the spokesman said the story was based on the recently published Post Programme Monitoring (PPM) report by the International Monetary Fund (IMF).

He said," The Net International Reserves (NIR) position reflects foreign currency assets of the Central Bank as against its liabilities." The story was comparing spot position of foreign exchange reserves with long term liabilities of the State Bank, which was not a good comparison as liabilities were to be retired gradually over a period of five to ten years time and not immediately in one instalment, he added.

He said the IMF loan for instance was to be repaid by the year 2026 meaning approximately $800 million repayment a year starting from 2018.

The spokesman said the foreign exchange reserves did not stay constant. "These are built on inflows through earnings from exports, personal transfers, foreign direct investments and earnings of the central banks. Major outflows from reserves are various repayments on account of imports, debt servicing etc. In addition it may be noted that loans and swaps are part of international reserves of central banks."

He said Pakistan had never defaulted on its international liabilities and had catered for it liabilities even with lower levels of foreign exchange reserves in the past.

It was also pertinent to mention that when present government took charge in 2013, Pakistan's NIR was negative $ 2.5 billion, he added.

He said the decrease in foreign exchange reserves were mainly due to current account deficit of which imports were the main component. Imports had shown unprecedented increase during 2016-17, while exports were declined.

The spokesman further said the negative trend in exports had bottomed out and the government initiatives had shown positive result as exports had increased by about 12 percent workers’ remittances improved by 3.4 percent during July-February, 2017-18 and the Foreign Direct Investment (FDI) also posted strong growth of 15.6 percent during July-Feb, FY2018 over last year.

He said while the current account deficit which had seen expansion above 210 percent in July of current fiscal year had now been started contracted as during Jul-Jan FY2018 it had been contained at 48 percent. With these positive trends strengthening, incoming months the current account deficit will improve in FY18, the spokesman said.

He added that the writers, in fact, had ignored the positive side of Fund’s assessment and had focused only on interpreting the potential challenges to the economy highlighted by the Fund.

He said the IMF had also endorsed the positive and favourable outlook for economic growth, with real GDP estimated to grow at 5.6 percent in 2017/18 within favourable inflation environment. The Fund had mentioned that the economic growth had continued to strengthen supported by improved energy supply, investment related to the China-Pakistan Economic Corridor, strong credit growth, and continued investor and consumer confidence.

The spokesman said it was important to share some positive trend of the economy during the current fiscal year. The government had been able to achieve fiscal consolidation without compromising development expenditures as fiscal deficit had been contained at 2.2 percent of GDP during first half of current fiscal year against 2.5 percent in the same period of FY2017.

He said PSDP expenditures increased to Rs.733 billion during FY2017 over last year and this year the allocation was Rs.1 trillion. FBR tax collection continued to show impressive growth above 17 percent during July- February, FY2018 while inflation had been contained at 3.84 percent during July-Feb, FY2018 against 3.90 percent in the same period of FY2017. LSM had shown impressive broad-based growth of 6.33 percent during July-Jan, FY2018 compared to 3.59 percent of last year.

FDI after witnessing a subdued growth during last two months of CFY2018 had improved in February 2018 by 235 percent over January 2018, and by 15.6 percent during July-Feb, FY2018, he added.

The spokesman further said under agriculture sector, the credit disbursement continued to increase above 42 percent during July-Jan, FY2018 over the same period last year. While incorporation of companies also improved above 44 percent during first half of FY2018. The credit to private sector has shown an impressive growth above 15 percent on Y-o-Y basis as on 2nd March, 2018, which suggest that there is strong growth in aggregate demand reflecting productivity in the economy.

The government, he said, was committed to maintaining foreign exchange reserves adequate to fund 2 ½ to 3 months of imports. Adequate financing was already in place to ensure maintaining the stability in foreign exchange reserves, he added.