Pakistan’s external financing needs $18 billion, says ministry
Claim apparently aims to allay fears that SBP could freeze foreign currency accounts
ISLAMABAD:
In a bid to avoid a run on the dollar, the Ministry of Finance has moved to pacify jittery sentiments and claimed that Pakistan’s gross external financing needs are $18 billion for this fiscal year.
But the $18 billion figure again appears unrealistic as it does not fully take into account the ever-widening current account deficit and ballooning external debt repayments.
The finance ministry made this claim on Saturday after lawmakers expressed concerns that the State Bank of Pakistan (SBP) could freeze the foreign currency accounts. The fear about freezing of accounts grew after the SBP borrowed $6.12 billion from domestic commercial banks to inflate its fast-depleting gross official foreign currency reserves of $14.13 billion. The $6.12 billion amount belongs to private depositors.
Pakistan hits back, rejects World Bank’s estimate of financing needs
“Pakistan's gross financing need for 2017- 18 is estimated at $17 to $18 billion, which are equal to 5% to 5.3 % of the GDP,” said the finance ministry spokesman, adding that the gross financing need represents current account deficit, medium long term amortisation and stock of short-term external debt.
He said that in the last fiscal year [2016-17] Pakistan's gross financing needs were 17.107 billion, i.e. 5.6% of the GDP of that year. As such the external gross financing need this year would be less than the last year’s in terms of percentage of the GDP, he added.
After accounting for these arrangements, the net financing gap that the country faces this year is estimated to be in the range of $2 to $2.5 billion, according to the spokesman. However, both these assertions about gross and net external financing requirements are apparently not valid.
World Bank: Pakistan’s macroeconomics conditions have significantly worsened
During recent talks with the International Monetary Fund (IMF), the finance ministry upward adjusted its current account deficit projections to $14.5 billion. This appears again conservative as the current account deficit has already widened to $6.6 billion in just five months of this fiscal year.
On Friday, the finance ministry admitted that its public debt related obligations were $6.1 billion. This is exclusive of $2 billion publicity guaranteed and private sector related external debt obligations.
Even adding official projections of current account deficit and public debt external repayments obligations, the gross external financing needs would come closer to $20.6 billion, which are $2.6 billion more than finance ministry’s fresh claims.
Trade deficit jumps 30% in 1QFY18
Secondly, the finance ministry’s conservative estimation of $2.5 billion net financing gap is tantamount to an admission that the current gross official reserves of $14.1 billion would deplete by the same amount. Independent economists are predicting return to the IMF programme in next few months to remain afloat.
But the finance ministry insisted on Saturday that Pakistan's gross external financing requirements in FY 2018 have been misreported, with different media reports putting the figure differently ranging between $31 billion to $26 billion and $17 billion to $12 billion.
According to the spokesman, Pakistan continues to maintain a healthy level of foreign exchange reserves despite pressures. He said arrangements are in place to meet the gross external financing need of the country.
Ministry ‘too busy’ to brief Senate panel on swelling foreign loans
These arrangements include government official inflows from multilateral and bilateral sources, Sukuk and Euro bonds, privatisation proceeds, foreign direct investment (FDI), private capital inflows and commercial financing, if necessary.
After accounting for these arrangements, the net financing gap that the country faces this year is estimated to be in the range of $2 to $2.5 billion. The spokesman said data for the first five months of the current financial year revealed a rebounding external sector of the economy.
After remaining in negative territory successively for several years, exports have shown 12% growth in the first five months of this year. Remittances have now returned to growth zone after remaining negative last year. The FDI registered a phenomenal growth of 57% in first five months of this year.
IMF projects Pakistan’s external financing requirements at $16.2b
More importantly, imports are showing visible deceleration on month-on-month basis. With these multifaceted, positive trends further strengthening in the second half of the current financial year, Pakistan will be able to make up for the external gross financing comfortably while maintaining the foreign exchange reserves at a healthy level, according to the spokesperson.
“Any speculation with respect to the foreign exchange reserves of the country and the sustainability of the external account should best be avoided,” he concluded.
In a bid to avoid a run on the dollar, the Ministry of Finance has moved to pacify jittery sentiments and claimed that Pakistan’s gross external financing needs are $18 billion for this fiscal year.
But the $18 billion figure again appears unrealistic as it does not fully take into account the ever-widening current account deficit and ballooning external debt repayments.
The finance ministry made this claim on Saturday after lawmakers expressed concerns that the State Bank of Pakistan (SBP) could freeze the foreign currency accounts. The fear about freezing of accounts grew after the SBP borrowed $6.12 billion from domestic commercial banks to inflate its fast-depleting gross official foreign currency reserves of $14.13 billion. The $6.12 billion amount belongs to private depositors.
Pakistan hits back, rejects World Bank’s estimate of financing needs
“Pakistan's gross financing need for 2017- 18 is estimated at $17 to $18 billion, which are equal to 5% to 5.3 % of the GDP,” said the finance ministry spokesman, adding that the gross financing need represents current account deficit, medium long term amortisation and stock of short-term external debt.
He said that in the last fiscal year [2016-17] Pakistan's gross financing needs were 17.107 billion, i.e. 5.6% of the GDP of that year. As such the external gross financing need this year would be less than the last year’s in terms of percentage of the GDP, he added.
After accounting for these arrangements, the net financing gap that the country faces this year is estimated to be in the range of $2 to $2.5 billion, according to the spokesman. However, both these assertions about gross and net external financing requirements are apparently not valid.
World Bank: Pakistan’s macroeconomics conditions have significantly worsened
During recent talks with the International Monetary Fund (IMF), the finance ministry upward adjusted its current account deficit projections to $14.5 billion. This appears again conservative as the current account deficit has already widened to $6.6 billion in just five months of this fiscal year.
On Friday, the finance ministry admitted that its public debt related obligations were $6.1 billion. This is exclusive of $2 billion publicity guaranteed and private sector related external debt obligations.
Even adding official projections of current account deficit and public debt external repayments obligations, the gross external financing needs would come closer to $20.6 billion, which are $2.6 billion more than finance ministry’s fresh claims.
Trade deficit jumps 30% in 1QFY18
Secondly, the finance ministry’s conservative estimation of $2.5 billion net financing gap is tantamount to an admission that the current gross official reserves of $14.1 billion would deplete by the same amount. Independent economists are predicting return to the IMF programme in next few months to remain afloat.
But the finance ministry insisted on Saturday that Pakistan's gross external financing requirements in FY 2018 have been misreported, with different media reports putting the figure differently ranging between $31 billion to $26 billion and $17 billion to $12 billion.
According to the spokesman, Pakistan continues to maintain a healthy level of foreign exchange reserves despite pressures. He said arrangements are in place to meet the gross external financing need of the country.
Ministry ‘too busy’ to brief Senate panel on swelling foreign loans
These arrangements include government official inflows from multilateral and bilateral sources, Sukuk and Euro bonds, privatisation proceeds, foreign direct investment (FDI), private capital inflows and commercial financing, if necessary.
After accounting for these arrangements, the net financing gap that the country faces this year is estimated to be in the range of $2 to $2.5 billion. The spokesman said data for the first five months of the current financial year revealed a rebounding external sector of the economy.
After remaining in negative territory successively for several years, exports have shown 12% growth in the first five months of this year. Remittances have now returned to growth zone after remaining negative last year. The FDI registered a phenomenal growth of 57% in first five months of this year.
IMF projects Pakistan’s external financing requirements at $16.2b
More importantly, imports are showing visible deceleration on month-on-month basis. With these multifaceted, positive trends further strengthening in the second half of the current financial year, Pakistan will be able to make up for the external gross financing comfortably while maintaining the foreign exchange reserves at a healthy level, according to the spokesperson.
“Any speculation with respect to the foreign exchange reserves of the country and the sustainability of the external account should best be avoided,” he concluded.