External financing needs

The latest SBP data shows that there will be around dollar 12 billion financing gap in the external sector for the current fiscal year. The SBP Governor has not categorically ruled out the possibility of going to the capital market again but said that there is no immediate need of short-term commercial borrowings subsequent to capital market transactions of Euro and Sukuk bonds. According to another source, Pakistan is required to repay dollar 5.9 billion external debt servicing and principal amount in the current fiscal year and a payment of dollar 2.4 billion has already been made during July-November, 2017.
Recently, Dr Hafiz Pasha, a renowned economist and former Finance Minister of the country, while speaking at a seminar organised by the German Institute, Friedrich-Ebert-Stiftung, warned that the government will run out of foreign currency reserves which will trigger a financial crisis. According to him, Pakistan’s external financing needs will be dollar 32 billion for the next 18 months, of which only dollar 8 billion will come through the CPEC and FDI whereas the government will have to resort to borrowings to cover the rest.
The country has already been facing difficulties in managing its external account due partly to mounting foreign debt repayments and a widening current account deficit. To make matters worse, the government’s response to the impending crisis is both slow and inadequate. It has recently imposed a regulatory duty on certain kinds of imports, offered PM’s export package and lately devalued the currency by only 5 percent and that too probably under the IMF pressure. Such half-hearted measures may release some pressure on the external sector but provide no durable answer to the enormity of challenge.
It seems that the government, instead of undertaking the needed reforms, is conducting a ‘holding operation’ that, according to economic experts, is aimed at keeping foreign currency reserves at a level that will allow it to defer the issue till June next year. The only way after the elections and for the new government then would be to go for another bailout package from the IMF. The economy is in a double bind. The only way out of the nut-cracker for the government is toinitiate the long overdue structural reforms. Otherwise, the situation would spin totally out of control. The present policy of ad hocism could delay the problem for a few months more but cannot resolve the real issue in the medium to long-term.
The government needs to tell the truth as there is a vast difference between the estimates of the financing gap made by the SBP and the country’s renowned economists who openly say that over the past four and half years, the government has pursued a path of presenting unrealistic and fabricated statistics. Sensitive indicators like debt-to-GDP ratio, inflation and economic growth are manipulated and fudged. The need of the hour is to come clean. The government must move quickly to dispel the impression that it is playing around with economic figure to save its political image. It must come out with full disclosures to restore the credibility of official statistics. This will be helpful in negotiating with aid agencies and other development partners.

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Mian Bilal