ISLAMABAD: International Monetary Fund (IMF) on Thursday projected Pakistan’s gross external financing needs at $24.464 billion for the current fiscal year of 2017/18 – a projection that brushed aside the finance ministry’s claim of $18 billion by a wide margin.
The country’s gross financing needs in percentage of GDP will climb to 7.5 percent during the current fiscal year.
“The elevated current account deficit and rising external debt service, in part driven by CPEC- (China-Pakistan Economic Corridor) related outflows (loan repayments and profit repatriation), are expected to lead to higher external financing needs, which are expected to rise from $21.5 billion (7.1 percent of GDP) in FY2016/17 to around $45 billion by FY2022/23 (9.9 percent of GDP),” IMF said in its first post program monitoring (PPM) report. Pakistan ended $6.7 billion of IMF’s extended fund facility in September 2016.
The fund said the country would manage to receive $20 billion from different bilateral and multilateral avenues and so the country’s reserves are projected to be depleted in the range of $3.726 billion.
Pakistan’s current account deficit for FY2018 was projected at $15.695 billion out of which interest payment would be standing at $2.516 billion, it added.
IMF estimated no inflows in shape of coalition support fund (CSF) reimbursements during the current fiscal year as compared to $720 million in FY2017, $937 million in FY2016 and $1.452 billion in FY2015
“Mobilising affordable external financing could become more challenging in the period ahead,” it said. “While the level of external debt (27.4 percent of GDP in FY2016/17) has remained moderate, continued mobilisation of external financing at favorable rates could become more challenging in the period ahead, against the background of rising international interest rates and increasing financing needs.”
The fund, however, said reduction in external borrowing (over $10 billion in FY2017 and more than $6 billion so far in FY2018) has been instrumental in softening the impact of the rising external imbalances on foreign exchange reserves.
IMF foresees Pakistan’s weakening capacity to repay its loan with repayments to the fund scheduled to start in 2018, peak in 2021 and gradually decline until 2026.
“While these obligations do not exceed six percent of total external debt service in any year, their share in gross reserves is expected to rise significantly in the medium term reaching close to 15 percent in 2022,” it said.
IMF said risks to Pakistan’s economic outlook and capacity to repay are largely on the downside.
“Demands for higher spending in the pre-election period could raise the fiscal deficit, including at the provincial level,” it added. “A more gradual deceleration of imports (for example, due to higher oil prices) and slower recovery of exports and remittances could further widen the external deficit.”
The fund said tightening global financial conditions and changing investor sentiment could complicate mobilisation of external financing, particularly if external and fiscal imbalances are not proactively addressed, eroding confidence, private investment, and economic growth.
“A deterioration in security conditions could also negatively affect investment,” it added. “Lower growth in key trading partners or further appreciation of the real effective exchange rate could accentuate these trends.”
IMF further said continued scaling up of CPEC investments could accelerate the buildup of related external payment obligations. “In staff’s downside scenario, based on partial materialisation of these risks, Pakistan’s capacity to repay could deteriorate at a faster pace, with faster depletion of foreign exchange reserves and significant implications for economic growth.”