Pakistan meets IMF condition of $7.3 bn NIR target

ISLAMABAD: Despite an increasing upward requirement on its net international reserves by $550 million in the wake of a decline in oil prices, Pakistan has met the IMF condition on the net international reserves (NIR) target to stretch it at $7.3 billion for end June 2015.
The IMF had adjusted upward the NIR requirement from $6.750 billion to $7.3 billion for June 30, 2015 which would help Islamabad to complete the next review under the $6.64 billion Extended Fund Facility (EFF), expected to be held after Eidul Fitr probably in Dubai.
When contacted, Governor State Bank of Pakistan Ashraf Mahmood Wathra confirmed on Saturday that the upward revised NIR target for end June 2015 was $7.3 billion. “We have met this target with a comfortable margin,” he added.
The Pakistani authorities have assured the IMF through a signed Memorandum of Economic and Financial Policies (MEFP) that they will continue to build foreign exchange reserve buffers to reduce external vulnerabilities. Lower international oil prices have presented an opportunity to strengthen our external position on a sustainable basis by accelerating the build-up of reserves under a market based exchange rate.
“At the same time, our trade competitiveness needs to be strengthened. In order to further strengthen our international reserves position, we propose to increase the NIR target for end-June and to set subsequent performance criteria (PCs) accordingly,” Wathra said.
The IMF’s report states that the end-March NIR target was comfortably met (by over $700 million), as the lower oil bill, robust remittances and improving macroeconomic conditions allowed for SBP contracts to be narrowed by $10 million spot purchases of $750 million over the quarter.
Pakistani authorities, according to the IMF, continue to accumulate reserves and reduce external vulnerabilities. Taking advantage of the continued low international oil prices, the authorities have agreed to increase NIR targets for forthcoming reviews.
The end-June performance criterion is proposed to be raised by $550 million and the end-September PC is proposed to be set at $1 billion above the revised June target.
The SBP has significantly stepped up its spot market purchases of foreign exchange, which have netted some $2.9 billion so far in this fiscal year as of end-May 2015.
These efforts will increase the reserve coverage to well above three months of imports by end-June2015 (a year earlier than envisaged at the onset of the programme), bolstering resilience against future external shocks.
Nonetheless, the IMF staff and Pakistani authorities agreed that further accumulation of reserves will be strongly desirable as the balance of payments position remains vulnerable and reserves are still significantly below adequacy norms. The staff noted that further accumulation could also help upward trend in the exchange rate equilibrium, which was inconsistent with fundamentals, although the staff also agreed with the authorities that a range of other issues would need to be addressed like electricity shortages, security issues and business environment.