Fiscal woes: 53% of foreign receipts may get blocked

Termination of IMF loan, patchy Pak-US relations put question mark over release of funds.

ISLAMABAD:

Pakistan’s fiscal woes are likely to deepen further as 53% of the estimated foreign receipts may get blocked, threatening to deplete foreign currency reserves, besides shifting three-fourth of the budget financing to the domestic market.

The country may receive only $2.2 billion external receipts this year against the budget estimates of $4.7 billion.

Factors like termination of the $11.3 billion International Monetary Fund (IMF) programme, Greek debt crisis, dispute with Etisalat and patchy relations with the United States has put a question mark on the release of $2.5 billion foreign loans and grants at this point in time. This amount is 53% of the total estimated external receipts.

Against estimated receipts of $2.2 billion, the government needs to pay back $3.3 billion in principal foreign loans. The government may end up paying the difference out of the central bank’s foreign currency reserves.

According to the Finance Secretary Dr Waqar Masood, since June 30 the central bank’s own reserves have depleted to $1.4 billion. The meltdown is $200 million more than what the government had worked out for the entire fiscal year.

The negative inflows of $1.1 billion are likely to bring down reserves that had been recorded at $17.2 billion (including private reserves) on October 13. The lack of $2.5 billion (Rs223 billion) worth of receipts would also shift the budget financing burden to domestic sources.

On the basis of 4% or Rs850 billion budget deficit, the government had estimated to get Rs414 billion ($2.7 billion) from external source- that is 48.7% of the needs. Due to the less than estimated inflows, the government will now have to meet three-fourth of the financing requirements from domestic sources.

Independent experts have already warned that the domestic borrowing will not only crowd out private sector credit but also spurt inflation.

According to Annual Budget Statement 2011-12, the detail statement of government’s receipts and expenditures, the government plans to float $500 million worth of Euro bond.

“It is not an appropriate time to go to the European debt market”, said Dr Ashfaque Hasan Khan, former Director General Debt, Ministry of Finance. He said the Greek debt crisis that has shaken the 17-member European Union, Pakistan’s souring relation with the IMF and poor domestic economic conditions would keep the investors away from investing in Pakistani bonds.

The government also wants to raise $500 million from the Islamic Development Bank (IDB). The IDB gives very expensive short-term loan. A similar desperate attempt made last year could not succeed due to disagreement on mark up rate.

Pakistan has also estimated to receive $160 million from Friends of Democratic Pakistan. Bearing in mind the past trends and patchy relations with the US, authorities may not get the entire amount. Last year, Pakistan had received only $116 million against estimates of$625 million.

The government has estimated receiving $390 million for budget financing under Kerry-Lugar package. However, almost three and half months have passed and no releases have been made. Both the countries have yet to work out the amount the US would give for budget support.

The government further hopes that it would recover $800 million pending installments of Pakistan Telecommunication Limited from Etisalat. The Secretary Finance and the Interior Minister had visited Dubai early this week but the issues remained unresolved.

However, the Secretary Finance claimed that some progress had been made during the visit. The Interior Minister had made a similar visit in June this year but could not resolve the dispute.

Published in The Express Tribune, October 16^th, 2011.