As the second quarter draws to a close, Finance Ministers hope of fetching $2 billion worth of non-IMF inflows by December looks like a dream left unmaterialized. Although, ministry sources are optimistic about the inflow of $1.8 to $2 billion by the end of this month, but that will mostly include IMF inflows worth SDR 767 ($1.2 bn) expected to be approved tomorrow.
In addition to IMFs third tranche, the fiscal office is expecting about $600 million from multilateral and other bilateral sources, including the strong likelihood of $200-250 million from the ADB and about $200 million from the Saudi government. The ministry expects another $150-200 million from the Kerry-Lugar Bill with rest of KLB commitments likely to be materialized in the remaining two quarters.
The U.S Coalition Support Fund of $500 million, which has been delayed by almost a quarter, is now anticipated to arrive in January. Thus a flurry of funds including $1.3 billion from Kerry Lugar and some of other commitments from FoDP might materialize in the second half of this fiscal year.
But, these flows are largely at the whims of US and company with not much in the hand of Pakistans economic and political managers. So, without delving into the math for next six months, lets concentrate on what might happen in the coming ten days.
As earlier discussed in this column, the countrys nascent economic recovery is contingent upon soft foreign flows in the short and medium term. The question is to what degree would these inflows address domestic liquidity crunch amid high fiscal financing that is squeezing industrial sector credit.
Since the start of this year, high government borrowing is virtually eating all the money that is supposed to go in hands of private creditors. However, in the ongoing quarter, owing to seasonal hike in working capital requirements of textile and other export oriented sectors, private sector somehow managed to raise Rs 122 billion as against Rs 211 billion borrowed by the government, from the banking system, to meet its budgetary expenses.
Based on last available data (as of week ending December 5), the government had to retire Rs162 billion of SBP debt by month end. And considering the government hasn received tangible foreign inflows since then, it is safe to assume that the amount of debt has inflated further by now.
The government may transfer SBP profit in its account to balance a portion of this amount (like it transferred Rs70bn in the last quarter), but it will still have to use all of that fiscal support component of IMFs tranche to meet IMFs condition of net zero government borrowing. As per IMFs country report, $370 (Rs30 bn) is expected to be for fiscal support in this tranche and rest of IMF flows will be for balance of payment support that would have no direct impact on domestic liquidity.
Since around Rs100 billion of governments SBP borrowing might be balanced out by IMF and SBPs profit, the remaining amount is likely to be substituted with commercial banks lending which would limit the resources to private borrowers.
Thankfully, however, the KLB money and a portion of multilateral funds would facilitate Rs50 -60 billion to private sector, while multiplier affect might also do its trick in the coming weeks. Moreover, cattle market money that is expected to revert back to the system could create further credit room for the industry.
On the other hand, these funds would help rupee to regain some of its value against green back. After the news of transfer of remaining 40 percent of oil payments to inter-bank system, the rupee, which slid (from 83.56 on December 1 to 84.50 on December 16) in the course of just two weeks, recovered to 84.20 against dollar yesterday with the noise of these flows. In the coming month or so, rupee is expected to hover around 83.50-84.50 and the fate of US Coalition Fund and other flows will determine its direction thereafter.
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FOREIGN FUNDS IN NEAR FUTURE
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Fund Source Amount ($) Remarks Timing Likely Hood
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IMF 830 Third tranche of BoP support 23-Dec Very Strong *
IMF 370 Bridge Fiscal Financing 23-Dec Very Strong *
KSA 200 FoDP commitment Before 31-Dec Confirmed
Kerry Lugar Bill 150-200 As per KB bill Before 31-Dec Strong
ADB 200-250 Multilateral support Before 31-Dec Strong
US coalition Fund 500 Already three months delayed In Jan Fair
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