ISLAMABAD:
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.”
(Read: Parting ways with the IMF - The govt’s math does not add up)
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.
(Read: Parting ways with the IMF - The govt’s math does not add up)
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.
Budget deficit
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.
COMMENTS (34)
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Where are the guys who used to shout that 'we don't need aid'?
The facts, are, my dear patriotic friends; the milk you drink, the bread you eat, the medicine you take, the roads you travel, the salary you get, the electricity you enjoy, the mobile signals you get, the Army that you love.....all these come to you courtesy American Aid.
None of this would have been possible without the billions of US charity that have poured into this country right from 1948. The only reason the US are still not going for the jugular is there is still genuine concern for the common people in Democratic party leadership in US. They know that there will be large scale riots in Pakistan if the US stops the aid completely. I think Republicans have come round to the view that Pak doesn't deserve the friendship or the money of US anymore.
Here are facts India Estimates: Similarly, estimates for India also indicate a continuing decline in poverty. The revised estimates suggest that the percentage of people living below $1.25 a day in 2005 (which, based on India’s PPP rate, works out to Rs 21.6 a day in urban areas and Rs 14.3 in rural areas in 2005 ) decreased from 60% in 1981 to 42% in 2005. Even at a dollar a day ( Rs 17.2 in urban areas and Rs 11.4 in rural areas in 2005 ) poverty declined from 42% to 24% over the same period.
So it around 40%.
( Bye the way, India does not fudge statistics to fool itself, like one neighbouring country does. )
The PAK finance minister is bringing bad name to his Alma Mater by vacillating approach to IMF. No nation can survive without borrowing.
PAK finance ministry should asserts its constitutional power and clean up the economy.
If a nation plans its budget depending upon the expected payment of its war time services, then she has to be in perpetual war service.
Every time I read SBP monetary policy reports two factors come into play in economic forecast: foreign remittances, and US reimbursement.
Not a good sign.
With continued acute power shortage that disrupts the country's major export- textiles, crippling railway freight service, and loss of industrial productivity PAK needs a major economic overhaul.
@Ghaznavi: Fix your broken home first!!!
We have been doing that. We never really stopped doing that, its just that we have been little slow.
You can't deny what is plain reality. India is one of the rising economies of the world. By 2030, India will be the 3rd largest economy after China and the US. Inspite of the global recession during 2008-09, the Indian economy grew at the robust rate of 8 percents which clearly indicates the dynamism of the Indian economy. At least India is not begging IMF, the US, China and Saudi Arabia for money. If it is hard for you to accept the reality, just bury your head in sand.
Trade not aid is the bold new slogan of Pakistan.
@ Pundit, Bruteforce, EMP_Pulse, Mango man
So India 311 Bn USD?? Why don't you tell this to the 85% living under USD 2 per day?
Only India's external debt is USD 306 Billion and rising ....
And if you can dispel any figure I quoted, pls do that. The poverty line has recently been revised by your Govt. Prove me wrong then?
Fix your broken home first!!!
Many economists (and I can think of NO exceptions) have said that breaking with the IMF at this time would lead to "catastrophic economic consequences".
I stick by that assessment.
@Ghaznavi: You are classic & Living example of a person living in fools paradise... by saying 85% of indians living in poverty..you have not updated yourself from ages.. probably it is not your problem..getting latest Information in Pak may be a great deal.. i understand that.. but my advice pls update yourself.. India is bailing out ailing European nations.. :-) How u r feeling now.
Financial Forecasting +++++++++++++++++ Expected Inflow Real Inflow Etisalat 800 Mn USD ? CSF 2500 Mn USD ? Bonds 500 MnUSD ? WB/ADB ? ? FloodRelief 347 MnUSD 150 Mn USD
Total 4147 Mn USD ?
Lets fill in the blanks in ,March 2012!
This Month: We need IMF
Next month: We dont need IMF
This Month: We need IMF
Next month: We dont need IMF
That's what I call dynamic decision making.
@EMP_Pulse: Please don't take Ghaznavi's comments literally and don't obfuscate the issue with reality.
What is remarkable is his passion and zeal for the up liftment of the poor and downtrodden in India.
I suggest that he be appointed the President of India Pakistan Friendship Association
@Ghaznavi:
Ha! In a report which says Pakistan is desperate you "counter" by accusing India of being worse. I wonder why is that!
I live in India and the figures you quote can easily be dispelled but I dont think its of much use.
If the "pure of the pure" in Pakistan can be so much trouble, "Hindu Bania" must be worse is your thinking. I wouldn't want to burst your bubble.
@Ghaznavi:
Huh? India has over $311 Billion in forex reserves, why would it need a few billion dollar loan from the IMF??
IMF.....is this the same IMF that refused a meeting between the FM and the Head of the IMF?
Has the 347 Mn USD (expected inflows against the UN appeal for flood victims )been accounted in the above calculation?
India needs this money more than Pakistan; Power blackouts in Indian cities are growing which is hampering economic growth; High inflation is causing more people to fall in poverty; already 85% of indians live under USD 2 per day; But Indian government says any Indian who earns more than Rs. 23 in rural and more than Rs. 31 in Urban areas is not poor.
I wonder why doesn't India further lower their poverty line to Rs. 0.5 per day. This way they will eliminate poverty and reach greatness (at least in books)
Where is the Gairath now
2011: Greece 2012: Pakistan 2013: ?
"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 expected receipts will be invested in the expected Daimer Bhash Dam which will solve the expected power crisis .
Maybe IMF will launch the Arab Spring in Pakistan!
Get more debt to solve our debt problem, good going. I think people in finance ministry are addicted to IMF money or they have some sort of personal benefit from borrowing. Because in common sense getting more loans while already being in debt is a disaster waiting to happen. Bring a neo-mercantilist finance minister and rid our selves from addiction of IMF/WB/ADB/IFC money.
Believe me guys sooner or later Pakistan is a failed state and mark my words Pakistan will collapse very soon.
IMF should use this opportunity to say outright that they will not give a single penny unless Pakistan reduces its Defence Budget..
On the other article there was outrage that Panetta talks about Nukes that are with Pakistan.
Tell me how are the nukes going to fill the reserves? Are the Nukes guarding Pakistan, or Pakistan guarding the nukes?
Fraud, lies and deceit. Other than that, everything else is fine.
After all the huff and puff, Pakistan would cooperate with the US and beg the IMF. They would do it after they have tried everything else and failed. May be China or Saudi Arabia give them a few million Rupees not Dollars.
On one hand the country is facing real and serious economic crisis,on the other hand FBR is continuing to give more and more concessions to strong lobby groups through SROs. In next few days expect another SRO which will convert minimum tax on services to adjustable tax causing according to some estimates a loss of potential revenue of over Rs 17 Billion And look at the policy of State Bank reducing interest rate by 1.5%.....what a disaster.
And in next week or so one will be hit with power crisis again go to huge bad debt t that is circulating which is called Circular debt.
And then we have huge cabinet---50 plus minister in Sindh, large cabinet at Center and Baluchistan
Why would IMF give loans to Pakistan without "prior actions" ie Pakistan would be told to eliminate power sector subsidies, introduce VAT,reduce waste.etc.And why will Pakistan get US support (votes) for IMF loans...
What is the solution: change the economic team especially at FBR as starter. Tell the truth about mess in economic sector
Well, the basic issue is that the government was unable/unwilling to deliver on the commitments it had made to IMF for its first loan in 2008. This is the reason the 3 billions were withheld. So if it expects that IMF will give it a second loan on terms that are softer than the first loan it is living in a fools paradise. Also while the US may not try to stop IMF, it is not going to lean heavily on behalf of Pakistan either. So regardless of whether Pakistan wants it or not, it is unclear how it would get a second loan without biting the bullet on the power sector reforms.
Senator Dar has already explained why the Etisalat payments are questionable. Same thing is true about ADB which has openly said that in absence of IMF monitoring, it does not have the confidence to lend Pakistan the money.
The fact that Pakistan needs IMF money was never in doubt If Zardari can push the date beyond March when Senate elections are to be held, that is what he would prefer.That's my opinion.
Not to worry. Ejaz Haider says Pakistan needs strategic depth more..