30pc drop in international funding: Saudi, Chinese assistance helps Pakistan build financing gap

ISLAMABAD: After 30 percent drop in conventional funding from the international creditors, Pakistan is able to bridge the financing gap through $3 billion oil on deferred payment from Saudi Arabia and another over $3 billion possible assistance from China during the upcoming visit of Prime Minister Imran Khan.

Within next 10 days, Pakistan’s economic managers will ascertain economic assistance from the UAE and China as well as other avenues for exact financing requirements for one to three years.

Then the IMF mission will land in Islamabad on November 7, 2018 to kick-start formal talks about the size of their programme and attached conditions and is expected to finalise parleys by November 20, 2018.

The Pakistani authorities are preparing a three-year framework on macroeconomic and financing requirements in order to align projections with the IMF programme. The gross financing requirement of next three years are ranging between $80 billion to $90 billion as the first year financing requirement stands at $30 billion for 2018-19.

Although Saudi Arabia deposited another $3 billion into the State Bank of Pakistan (SBP), such funds cannot be utilized for financing the yawning current account deficit. This $3 billion SWAPS fund will help for building up the foreign currency reserves position. China had already granted $2 billion Swaps funds early this fiscal year to shore up dwindling reserves.

“The multilateral and bilateral creditors funding has shrunk to below $1 billion during the first quarter (July-Sept) period of the current fiscal, witnessing fall of 30 percent compared to the same period of the last financial year,” said official sources and reminded that the envisaged target for foreign inflows was estimated at $9 billion for the whole ongoing financial year 2018-19.

The political transition and restriction imposed by Election Commission of Pakistan (ECP) on development funds played havoc with the project financing funded by the donors as no project could be approved in last five months.

“The whole pipeline of donor-funded projects got choked because no CDWP and ECNEC held for approving donor funded projects,” one top official dealing with donors told The News on Monday.

The $6 billion Saudi assistance in shape of $3 billion oil on deferred payment up to 3 years and remaining $3 billion for deposits into SBP will help to bridge the gap which had occurred in the wake of shortfall on account of shrinking funding from the conventional avenues.

The oil facility of $3 billion will help Islamabad to get a breathing space on financing the current account deficit for one year because afterwards Pakistan will have to repay the amount piled up on account of last year.

It is yet to see how much Chinese help Pakistan to finance its deficit on external account of the economy. Beijing has already provided $2 billion for SWAPS funds to shore up foreign currency reserves in the current fiscal year.

In the last fiscal year, China had provided over $5.5 billion including through commercial banks. The CPEC funding got slowed down as so far around $250 million has been utilised on CPEC projects against over $2.2 billion in the last fiscal year.

When contacted, former finance minister and renowned economist Dr Hafiz Pasha said the traditional source of funding had dried up and dropped 30 percent so far in the current fiscal year so the KSA and Chinese help would help mitigating this shortfall already occurred on external front.

He said that if the current account deficit continued to rise in the wake of increased oil prices then the government would have no other option but to seek bailout package from the IMF. When contacted, spokesman for Ministry of Finance Noor Ahmed said the current account deficit was on decline as it witnessed sharp decrease to $900 million from earlier $2 billion so if this trend continues in remaining nine months of the current fiscal then the overall CAD will fall around $11-12 billion for the current fiscal year. On IMF program, he said Pakistan was making efforts to get supplementary support from all donors and the Fund appreciates these efforts.