Pakistan’ financial reverie seems to be over, as a top economic manager said on Tuesday that the country’s external account has come under pressure in September and the central bank’s own foreign currency reserves depleted by $1.4 billion in a span of three months – $200 million more than what authorities assessed for the whole of current fiscal year.
In a briefing to Senate Standing Committee on Finance about the health of Pakistan’s economy and the country’s relationship with the International Monetary Fund (IMF), Secretary Finance Dr Waqar Masood said the economy was not in the 2008 crisis mode but “there were serious challenges to the economic outlook of the country.”
He hastily added, however, that the situation is expected to improve in the coming months on the back of project loans from the World Bank and the Asian Development Bank, expected receipts of $800 million from Etisalat, the buyer of 26% of PTCL’s shares, and issuance of $500 million exchangeable bonds in the international market.
Etisalat payment ‘precarious’
Senator Ishaq Dar of Pakistan Muslim League-Nawaz (PML-N), who is also the former finance minister, said that Etisalat would not pay a cent until the government shuns its policy of protecting illegal traffic and denounces its patronising of illegal exchanges.
The government is misleading the people by saying that Etisalat was delaying payments due to delay in transfer to assets to the company, he added.
The finance secretary, however, said that he visited Dubai with Interior Minister Rehman Malik on Monday and “some progress was made on the issue of release of $800 million withheld tranches of the PTCL.”
Second IMF programme
The secretary also hinted that the country may request the IMF for a second programme earlier than planned, given the constant pressure on the current account.
Earlier, the government had announced that it would not need a second IMF programme, at least in this fiscal year. It had estimated that despite IMF payments, Pakistan’s foreign exchange reserves would drop by $1.2 billion. The assessment was based on assumption that healthy trend in exports and remittances would continue for another year but the first quarter figures indicate a rocky path ahead.
The secretary said the country’s reserves had dropped to $17.1 billion, down from June 30 level of $18.3 billion.
The government has not soured its relations with the IMF and a mission is expected to visit in November, the secretary said.
He added that Pakistan took the United States, the United Kingdom, the WB and the ADB into confidence about terminating its financial arrangement with the IMF.
The Senate committee, however, was sceptical that the government would be able to float $500 million bond given the debt crisis in Europe, and receive payments from Etisalat and the US on account of the Coalition Support Fund (CSF).
“The finance ministry is a bit optimistic about its assessment of the situation,” said Senator Haroon Akhtar of PML-Q faction.
“There is a fear that Pakistan is heading towards a twin-deficit crisis again. The country is already in fiscal deficit and is now heading towards trade deficit,” said Senator Dr Safdar Abbasi.
The finance secretary said that according to initial assessments, budget deficit in the first quarter of the current fiscal stood at 1.1% of the national output, or Rs234 billion.
This amount is exclusive of power sector subsidies that the government will have to pick due to delay in reforms, he added.
On the basis of first quarter figures, the government has revised its budget deficit target upwards, to 4.4%, from parliament’s approved figure of 4%, Masood added.
The secretary said the US owes $2.5 billion to Pakistan on account of CSF disbursements, adding that during a recent visit to Washington, the Obama Administration indicated it would release the amount at the earliest.
“The US is holding CSF disbursements due to overbilling by the military,” said Senator Dar, adding that the military has to behave and send actual bills, since over-invoicing is bringing a bad repute to the country.
Published in The Express Tribune, October 12th, 2011.