Plan to turn to friendly countries for additional deposits

ISLAMABAD: The government is considering approaching friendly countries, especially Saudi Arabia, for additional deposits on an immediate basis and to end the ‘wait and see’ policy.

The Saudi authorities are busy ‘studying’ the possibility of additional deposits amid dwindling foreign exchange reserves. A senior official of the Finance Ministry said the fluid political situation was hampering the decision-making process, making it hard for policymakers to make hard choices for the revival of the IMF programme.

Top official sources told The News that time was running out and foreign exchange reserves held by the State Bank of Pakistan (SBP) were depleting at a fast pace. The foreign exchange reserves of the SBP had nosedived and stood at just $4.3 billion as of January 6.

The foreign currency reserves of commercial banks stood at $5.8 billion, so the total reserves of the country are hovering around $10.18 billion. The foreign exchange reserves held by the SBP dropped by $12.3 billion in the last 12 months; it stood at $16.6 billion as of January 22, 2022, which declined to $4.3 billion on January 6, 2023.

There is a lack of understanding how to move ahead to avert the looming crisis. Now the situation has reached a point where only action with a clear-cut vision can avert the crisis. If the lack of understanding persists, the economic situation will worsen. Now it is a matter of weeks not months, so the alarm bells must ring out for all those who matter. There is no time of luxury of months, so there is a need for immediate action.

It’s alarming that there is no substantial insight to avert the looming crisis or that the policymakers are waiting for a miracle to happen. Prime Minister Shehbaz Sharif had hinted that the IMF review mission might visit Pakistan within a few days but it did not happen. Sources said the PM might have requested the IMF MD for sending a review mission and she might have replied, “Let’s consider it.” Now Pakistani authorities wrongly understood that the IMF would send its mission without understanding the working mechanism of the donor agency.

Sources said that there was a strategy to get dollar inflows from friendly countries and utilise the resources as bridge financing to get a breathing space and strength for holding parleys with the IMF. But the strategy has so far failed to yield desired results.

Although, friends, like Saudi Arabia, have been studying the possibility of an additional $2 billion deposit, it is not yet clear how much time they will take to make the decision. The KSA had signed a $1 billion oil facility on deferred payment, which will resume next month (February 2023). The United Arab Emirates (UAE) agreed to roll over $2 billion in existing deposits but there is nothing specific about the additional $1 billion deposit request in a joint statement issued at the conclusion of the PM’s visit to the country.

The IMF’s review mission’s schedule is not yet confirmed because the government did not take the required tough measures, including hiking gas and electricity tariffs and taking additional taxation measures. The tough measures taken by the government could only pave the way for the completion of the pending 9th Review under the Extended Fund Facility (EFF).