Country needs $12bn to avert run on forex

ISLAMABAD: In order to bridge the financing gap, Pakistan requires dollar inflows of $9 to $12 billion in the shape of rollover and fresh loans from bilateral donors and commercial banks for avoiding further depletion of foreign currency reserves during the current fiscal year.

The dollars are running away at the moment and Islamabad immediately needs a dollar injection as a stop-gap arrangement to get a breathing space. Without the support of bilateral partners and seeking more loans from commercial banks, this gap cannot be fulfilled on a short-term basis.

The revival of the IMF will only be possible till the end June 2022 if everything goes well between the two sides. So, Pakistan and the IMF will have to strike a staff-level agreement after holding talks in mid May and then the Fund’s Executive Board requires 4 to 6 weeks period to get approval on next tranche of $960 million under $6 billion Extended Fund Facility (EFF). 

Pakistan has sought nine- month extension into EFF with an increase in size of program by $2 billion for jacking up total funding of $8 billion. The IMF program was going to expire in September 2022 but with request of extension now it would be matured in June 2023.

“Pakistan will have muster up dollar inflows of $9 to $12 billion depending upon level of current account deficit in remaining months so the government will have to ensure rollover of commercial loans and deposits from China, seeking more generous package from Saudi Arabia and securing commercial loans from consortium of banks in remaining period of the current fiscal year” top official sources confirmed while talking to The News here on Monday.

The official conceded that Islamabad will have to pay back external debt servicing to the tune of $3 billion in last ongoing quarter (April-June) period of the current fiscal year. The current account deficit stood at $13.2 billion in first nine months (July-March) period of the current fiscal year and it is projected that it might touch $18 to $20 billion till end June 2022. Keeping in view the conservative estimates, the current account deficit might touch $16 to $17 billion till end of the current fiscal year. However, some independent economists suggest that it might touch $18 to $20 billion for the current fiscal year.

On the basis of both these projections on CAD, it is estimated that the country requires $9 to $12 billion financing in remaining period of the current fiscal year. Pakistan is awaiting to get $2.4 billion loan rollover from China and all procedural requirement are completed. Ministry of Finance high-ups expect that it will be done in May 2022. China’s $2 billion deposits are also required rollover as $1 billion would be due in May and second $1 billion in July 2022. In totality, Pakistan requires $4.3 billion rollover from China in next four months.

Secondly, Prime Minister Shehbaz Sharif will be visiting Saudi Arabia this week and Ministry of Finance has worked out proposal for seeking extension in deposits of $3 billion in line with extension into IMF programme, seeking fresh deposits and utilization of oil facility on deferred payments.

This scribe contacted to UK based Pakistani economist Yousuf Nazar for seeking his comments, he replied that he argued for the withdrawal of subsidies to big businesses to the tune of Rs 800 billion, an increase in the tax rate on banks to 40%, sweeping deregulation of commodity trade and renegotiation of IPP to lower return. We need a comprehensive approach during technical talks with IMF in May, he concluded.