ISLAMABAD: In a rare rebuke, Pakistan on Wednesday took exception to the World Bank’s attempt to paint a negative picture of its external account, saying the country’s gross external financing needs stand at $18 billion this year – 41% less than what the bank has claimed.
“Pakistan’s external account has shown a strong performance in the first two months of the current fiscal year and misinterpretation of data (by the World Bank) to deliberately paint a negative picture is uncalled for,” said a spokesman for the Ministry of Finance.
The ministry issued the statement a day after a World Bank report made shocking claims about Pakistan’s gross external financing needs.
The ministry has accused the World Bank of “misinterpretation” of the standard definition of gross external financing needs and “misstatement” about the performance of external account. In the report, the World Bank put gross external financing needs of Pakistan at 9% of gross domestic product (GDP) ie $31 billion for the current fiscal year 2017-18, said the spokesman.
The gross financing requirement had been worked out by taking into account portfolio investment of 4% of GDP, which was equal to $13.8 billion. The report further projected deterioration of the external sector in the current year, he added.
As per international reporting standards, portfolio investment was not included while calculating gross financing needs of a country, argued the spokesman. He said as per international standards, a country’s gross financing need was an aggregate of current account deficit plus debt servicing for the year.
“Based on this standard, Pakistan’s gross financing need for 2017-18 is about $18 billion (5.3% of GDP) rather than $31 billion (9% of GDP) as mentioned in the report,” he said.
As of September 2017, the total portfolio investment in Pakistan was $6.6 billion, which was just 1.94% of GDP rather than $13.8 billion (4% of GDP) as claimed by the World Bank. “Again it is a misstatement of facts,” he said.
However, apart from giving wrong figures of the gross external financing needs, some observations of the bank about the health of the external sector were correct.
The Ministry of Finance is portraying a positive outlook of the external sector on the basis of just two-month data. It is ignoring the record $12.1 billion current account deficit in the previous fiscal year as well as a steep decline in foreign exchange reserves. Pakistan’s gross official foreign currency reserves stood at only $13.8 billion – a reduction of $5.6 billion in the past one year.
The spokesman added that the report itself pointed out that “improving the external balance hinges on the revival of exports, slowdown in imports and stable remittance flows”. This is precisely what has been achieved in the first two months of the current financial year.
The ministry said exports during July-August 2017-18 stood at $3.93 billion, 17.7% higher than the same period of last fiscal year. Imports in the two months stood at $9 billion against $9.738 billion in the preceding two months (May-June 2016-17), a deceleration of 7.6%.
Workers’ remittances during July-August 2017-18 stood at $3.5 billion against $3.09 billion in the same period of previous year, showing an impressive increase of 13.2%.
The spokesman said as a result of improvement in these key economic indicators, the current account deficit during July-August 2017-18 stood at $2.6 billion compared to $3.10 billion in May and June, showing a substantial improvement of 16.2%.
With these positive trends strengthening in coming months, the current account deficit would improve significantly, said the spokesman.
Published in The Express Tribune, October 12th, 2017.