Pakistani authorities have estimated $87.3 billion worth of debt and non-debt creating external inflows in the current fiscal year on the basis of some unrealistic assumptions amid the State Bank of Pakistan’s (SBP) worries over a possible drop in foreign remittances.
The $87.3 billion estimate of foreign inflows during fiscal year 2021-22 is based on the assumption that the International Monetary Fund (IMF) programme would continue that has again been derailed after remaining active for just a couple of months.
Finance Minister Shaukat Tarin on Thursday chaired a meeting to review the status of foreign inflows that the country needs to service its debt and meet international payment obligations, sources told The Express Tribune.
The session was the follow-up of a meeting that Prime Minister Imran Khan had chaired on July 2 to review the country’s foreign inflow situation amid the premier’s reluctance to accept some of the harsh IMF conditions.
However, Thursday’s meeting also ended inconclusively, as the finance ministry did not know the actual outflow in the shape of payments against imports, foreign loans and repatriation of profits.
Tarin was unhappy over the presentation and sought more information in the next meeting, said the sources. He also gave directives for providing month-wise status of projected foreign inflows and outflows.
Based on the input from the SBP, Board of Investment, finance ministry, economic affairs ministry and Ministry of Commerce, the inflows have been estimated at $87.3 billion during the ongoing fiscal year. These included $41.4 billion in inflows during the first half of current fiscal year, said the sources.
However, the numbers appeared on the higher side as Pakistani authorities showed a 7.3% to 43% increase in inflows under various categories, said the sources.
Remittances have been projected at $31.3 billion during this fiscal year - a growth of 7.8% over the last fiscal year. Sources said that the SBP informed the finance minister that it feared a dent in foreign remittances as the number of new workers going abroad had dropped drastically.
Tarin gave directives for studying the reasons behind the $29.3 billion worth of remittances in the last fiscal year, particularly the positive impact of restriction on overseas air travel and contingent measures by the Financial Action Task Force, said the sources.
The SBP sought approval of the finance minister for a prize scheme to encourage foreign remittances, which Tarin agreed to, said the sources.
The central bank is already playing a gamble by offering up to 7% interest rate on the Roshan Digital Account. Prime Minister Imran Khan, who was once against taking foreign loans, now proudly owns this kind of expensive foreign borrowing by Pakistan.
Sources said that the Board of Investment projected the foreign direct investment at $2.65 billion in this fiscal year, which was higher by 43% or $800 million over last year. This projection is being made at a time when foreign investment is drying up due to the government’s preferential investment policies and a hostile bureaucracy.
Foreign loans have been projected at $14.1 billion for this fiscal year, excluding any disbursements by the IMF, said the sources.
The Ministry of Commerce has estimated exports of goods at $31.6 billion, higher by $5.3 billion or 20.7%, said the sources. Similarly, exports of services have been shown at $8 billion, up by $2.1 billion or 26.2%, said the sources.
But nobody shared the imports of goods and services figures, which would have highlighted the gross external financing needs of the country.
Against the IMF projection of over $23 billion in gross external financing requirements for this fiscal year, the central bank in its Monetary Policy Statement stated that “with the contained current account deficit and healthy commercial, official, portfolio and FDI inflows, Pakistan’s external financing needs of around $20 billion are expected to be more than fully met.”
The Monetary Policy Committee (MPC) also noted that the market-based flexible exchange rate system, resilience in remittances, an improving outlook for exports and appropriate macroeconomic policy settings should help contain the current account deficit in a sustainable range of 2-3% of GDP in fiscal year 2021-22.
This new current account deficit figure is three to four times higher than the 0.7% of GDP that the government has used in its budget documents hardly a month ago, exposing the credibility and trustworthiness of the official planning and numbers.
Published in The Express Tribune, July 30th, 2021.
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