$6.7 billion programme: Pakistan seeks concessions from IMF
Lowering of reserves targets and increase in loan amount sought.
Pakistan has sought an increase in disbursements, as it would receive only $2.2 billion from the IMF this year as against repayments of the previous loan to the tune of over $3 billion, showing a gap of about a billion dollar, sources said. ILLUSTRATION: JAMAL KHURSHID
ISLAMABAD:
Amid persistent problems in building foreign currency reserves, Pakistan has sought some concessions from the International Monetary Fund (IMF) such as increasing loan amount and lowering reserves targets.
An IMF team, led by its Washington-based mission chief Jeffery Franks, on Monday began discussions with State Bank of Pakistan officials in Karachi. The two sides would review the possibility of relaxing targets on the external front in addition to evaluating progress on the first quarter’s targets, sources told The Express Tribune.
As Pakistan passed through the first quarter of the current fiscal year, there was a growing realisation on both sides that the quantitative targets of net foreign exchange reserves and ceiling on net foreign currency swaps assigned to the SBP were stringent, sources said.
The IMF realised that the balance of payments projections were over-ambitious, if not unrealistic. The current account deficit during the first quarter of the current fiscal year remained at $1.23 billion – slightly less than what the IMF had projected for the whole financial year.
The SBP managed to meet most of the targets for the first quarter but it unnerved the markets when it started purchasing dollars from the sport market, which put the rupee under pressure, resulting in over 7% devaluation in just three months.
However, the SBP failed to meet the projection of having $5.6 billion reserves by end September. Despite being in the IMF programme, the gross foreign exchange reserves depleted to $4.8 billion by end September, which further melted down to $4.086 billion by October 14 – less than even one month import bill cover.
The situation has brought both sides to a point where they will have to make adjustments in the macroeconomic framework just after less than two months of the approval of a $6.7 billion programme, sources said. The other option would be massive rupee depreciation, if the county tries to achieve the unachievable targets.
Pakistan has sought an increase in disbursements, as it would receive only $2.2 billion from the IMF this year as against repayments of the previous loan to the tune of over $3 billion, showing a gap of about a billion dollar, sources said. However, the Fund was not immediately ready to give this relaxation and asked Islamabad to first successfully complete first two reviews of the programme.
The area where the IMF has indicated showing leniency is reviewing the requirements of purchasing dollars from the market.
The flaw in the original framework was that the IMF had hoped that the rupee depreciation would make the country’s exports more competitive – an assessment that underestimated global economic conditions. The SBP’s ill-preparedness for the July negotiations was also the reason behind setting the overambitious targets.
The relaxation in the condition of building reserves may give a comfort to the SBP but would not soothe the market, which is closely monitoring the fast depleting reserves, according to an independent economist who wished anonymity.
However, according to finance ministry officials, there are problems in the short term but the situation is expected to turn around in March next year. From March, the economic managers hope to receive big payments from the Asian Development Bank and World Bank, floating a $650 million Euro bond and receiving some bilateral assistance, said the officials.
Published in The Express Tribune, October 29th, 2013.
Amid persistent problems in building foreign currency reserves, Pakistan has sought some concessions from the International Monetary Fund (IMF) such as increasing loan amount and lowering reserves targets.
An IMF team, led by its Washington-based mission chief Jeffery Franks, on Monday began discussions with State Bank of Pakistan officials in Karachi. The two sides would review the possibility of relaxing targets on the external front in addition to evaluating progress on the first quarter’s targets, sources told The Express Tribune.
As Pakistan passed through the first quarter of the current fiscal year, there was a growing realisation on both sides that the quantitative targets of net foreign exchange reserves and ceiling on net foreign currency swaps assigned to the SBP were stringent, sources said.
The IMF realised that the balance of payments projections were over-ambitious, if not unrealistic. The current account deficit during the first quarter of the current fiscal year remained at $1.23 billion – slightly less than what the IMF had projected for the whole financial year.
The SBP managed to meet most of the targets for the first quarter but it unnerved the markets when it started purchasing dollars from the sport market, which put the rupee under pressure, resulting in over 7% devaluation in just three months.
However, the SBP failed to meet the projection of having $5.6 billion reserves by end September. Despite being in the IMF programme, the gross foreign exchange reserves depleted to $4.8 billion by end September, which further melted down to $4.086 billion by October 14 – less than even one month import bill cover.
The situation has brought both sides to a point where they will have to make adjustments in the macroeconomic framework just after less than two months of the approval of a $6.7 billion programme, sources said. The other option would be massive rupee depreciation, if the county tries to achieve the unachievable targets.
Pakistan has sought an increase in disbursements, as it would receive only $2.2 billion from the IMF this year as against repayments of the previous loan to the tune of over $3 billion, showing a gap of about a billion dollar, sources said. However, the Fund was not immediately ready to give this relaxation and asked Islamabad to first successfully complete first two reviews of the programme.
The area where the IMF has indicated showing leniency is reviewing the requirements of purchasing dollars from the market.
The flaw in the original framework was that the IMF had hoped that the rupee depreciation would make the country’s exports more competitive – an assessment that underestimated global economic conditions. The SBP’s ill-preparedness for the July negotiations was also the reason behind setting the overambitious targets.
The relaxation in the condition of building reserves may give a comfort to the SBP but would not soothe the market, which is closely monitoring the fast depleting reserves, according to an independent economist who wished anonymity.
However, according to finance ministry officials, there are problems in the short term but the situation is expected to turn around in March next year. From March, the economic managers hope to receive big payments from the Asian Development Bank and World Bank, floating a $650 million Euro bond and receiving some bilateral assistance, said the officials.
Published in The Express Tribune, October 29th, 2013.