Foreign financing: Pakistan needs $10.8 billion to meet expenses
Most of the funds are needed to return the loans that the country has taken from foreign lenders over the years, shows a latest IMF report released after completion of the third review of Pakistan’s economy under the $6.7 billion bailout programme.
The funding needs have been calculated on the basis of projections made by the IMF staff and State Bank of Pakistan.
The huge appetite for $10.8 billion will keep policymakers on their toes throughout the year as some of the sources of financing that the government is banking on for bridging the gap appear risky and uncertain, according to sources in the Ministry of Finance.
The IMF is of the view that Pakistan will require $3.1 billion just to cover the current account deficit. Sources said the projection for the current account deficit seemed to be rosy as some of the anticipated inflows, particularly the Coalition Support Fund (CSF) disbursement by the US, are historically risky.
Like the previous year, the government in the new fiscal year 2014-15 expects to receive $1.4 billion in CSF, which reflects the expenses the country makes on defence and logistics in the global war against terrorism and is later on paid by the US.
Against the estimated CSF of $1.4 billion for the last fiscal year, the government received only $674 million in two tranches. Hopes for a third tranche of $375 million in the last quarter of the year were dashed, which would increase the current account deficit by the same amount.
Sources said the delay in launching an operation in North Waziristan was a reason for stopping the release of the promised $375 million as the Obama administration had no concrete argument to press the Congress to give the go-ahead for the payments.
The chances for CSF disbursement in 2014-15 appear to be bright, but it is not clear whether the US will release the entire budgeted amount.
In the year, the government needs $5.4 billion to retire medium and long-term debt including $1.3 billion to the IMF. It requires another $3.6 billion to pay back loans acquired from other creditors like the World Bank and Asian Development Bank (ADB).
An amount of $2.3 billion will also be needed to return short-term loans that the PML-N government has received in the last one year.
Against this huge financing gap, the report puts available financing at $6.5 billion. It expects the country to receive $4.3 billion on account of foreign direct investment and privatisation proceeds.
The estimate looks highly ambitious as the country has been facing challenges in attracting foreign investment because of the prevailing law and order situation and bureaucratic hurdles.
To fill the remaining gap of $4.3 billion, the IMF and SBP have assumed that the country will get the amount as part of programme financing from the IMF, World Bank and some other foreign lenders.
However, what the report does not enlist are the conditions associated with these loans that often lead to delay in releases and put foreign currency reserves under pressure.
The IMF is expected to make gross disbursement of $2.23 billion to Pakistan in the new fiscal year. Of this, the country will return $1.3 billion, leaving net IMF support at only $937 million.
The World Bank is likely to provide $1.3 billion in policy loans with no contribution seen from the ADB.
Under the programme arrangements, Pakistan is also supposed to increase its gross official reserves to $13.3 billion by the end of the fiscal year, an increase of $4.1 billion over the reserves held on June 30 this year.
However, sources pointed out that in the presence of $10.8 billion external financing needs, it would be a huge challenge for the central bank to boost its reserves by $4 billion.
Published in The Express Tribune, July 10th, 2014.
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@B: Stop this foolish talk, you megalomaniac! Now go and drink a a glass of cold water.
May Allah help Pakistan to get rid of such expenses
@B: It has nothing to do with India. It is actually no long run goals and objectives of the government. We should first stand on our own feet rather than talking of standing shoulder to shoulder with others.
talk about solutions rather than keep on mourning about the things. Following needs to be done:
Peace need to restored in counrty for investement to return to the Pakistan. Army need to focus on this rather than focusing on internal politics. Corruption need to be controlled and it is good that no new mega corruption scandal happened in last 1 year. Electricity need to be provided to the factories and Gov is working on it. Unfortuntely this can not be getting done overnight. Political stability is needed. Qadri and IK has to use their brain if they have any as this is not a time to do long march etc perhaps it is a time to do work. TUQ, this is democratics country so wonderng what inqelaab/revolution are you talking about. He might say that PML N and PPP will do the gov under current system. Well this is not the case. People in KPK have given chance to IK and if he shows the progress there then he has a chance to lead a whole nation in next election.If a TV channel executive is reading this (and he is sincere with the country), I request you to start a series of high-profile talk shows to discuss the 'State of Affairs', specially economy, health and education. Invite domain experts as well as key figures from government and ask them whether they have solid plans to resolve these issues once for all. This should continue until the government gets serious in resolving the issues or declares failure in which case, the government should quit.
Dawn has just said its 14 hours of load shedding every day....
Precarious Pakistan...
Even if PML (N) manages to get the required funding this year, what will happen in 2015 and so on. Is getting loans of from 'friendly countries' the only way to live? Unless we start living within our own means and invest in education there is no medium or long term survival for us.
!0.8 billion? That is nothing. We will keep eating grass to build more nukes and the biggest army in the world.
@Shujaat: Yes, yes, yes. As long as your establishment thinks that it can stand shoulders to shoulders with India. Bankruptcy!!!
So still we will be like begging begging and begging and not do something concrete and generate money from resources within the country..
So we are relying on the money from others and not generating income from our own resources. Sadly our leaders lack vision and we public are still sleeping and only think of our own pockets and not thinking as a nation. it is the need of time to change and mind the ways else time will change us and we won't be able to stand back on our own feet... Dear Leaders stop making statements and start doing something..Stop creating bubbles because they are meant to be burst find something called concrete solution to the problems nation is facing today..don't make claims which you cannot fulfil.
We need loans and more loans to fill the coffers of the corrupt leaders, it is as simple as that.
So what happened to the economic plan mentioned by Nawaz Sharif in his election campaign? Burst like a bubble?
We are a deficit economy & our leaders lack vision to understand the the problem. There is no real economic growth, which for decades is dependent on foreign borrowings & sale of prescious national assets. Since the size of borrowings has grown tremendously & with the widening of trade gap the economy is at risk of current account deficit. We are good talkers without a plan & the outcome would be in shape of worsening of balance of payment position that will lead to pressure on Rupee & higher inflation.
We cannot blame PMLN alone for these gigantic loans as every government since 1947 is responsible for this debacle. But at the same time when we see the lifestyles of current ministers and our Prime Minister Pluse President then the situation is no different and complete apathy for Financial restraint is evident in every manner. The daily expense of Prime Minister house alone has crossed more than 1 Million ( 10 Lakh Rupees Per day/ 36 Crore Rupees per year ). The daily expense of President House stood at Half a Million ( 5 Lakh Rupees Per day / 18 Crore rupees approx. per annum ). Also the four governers of Pakistan who have nothing to do like Our President on average spend more than 3 Lakh Rupees daily/ around 12 Crore Rupees Per year. Just imagine that our President, Prime Minister and four governers are living like mughal Kings and their joint annual expense alone is more than 1 Billion Rupees annually. What do they eat?. Biscuits made of Gold and Silver? . I am not even adding the expenditures incur on Chief Ministers, Federal Ministers and Provincial ministers right now and if we add all expenses then it amounts to Billions more and sometimes it feel that Mughal History is repeating every day in Pakistan.
Privatization proceeds of $4.3 billion? What are they going to sell in one year that is worth that much? KSA needs to rescue us again or we are toast.