KARACHI – At a time when the economic managers in Islamabad are rejoicing at the achievement of a positive balance of $26 million in its current account, the country’s financial accounts have ‘coincidentally’ deteriorated to their worst level in the last five years. According to official sources, Pakistan is in the deep end with its financial accounts facing on the most severe monetary imbalances since 2005.
“The current account surplus is indeed a good omen but, the country’s financial accounts have deteriorated,” they noted with concern adding that, “we have the worst financial performance that (if calculated) on net basis puts the country at loss.” The sources added that Pakistan, which mainly depends on foreign inflows for balancing its external accounts in terms of balance of payment, has received ‘zero’ foreign inflows during the second quarter of the current fiscal year.
They said a striking slump in the foreign inflows like foreign direct investment (FDI), portfolio investment, loans and other grants had depreciated financial accounts of the funds-starved country in an unprecedented manner. The statement seems to carry enough weight if analysed in the backdrop of the State Bank’s statistics revealing that during July-December 2010-11, foreign disbursements to the country had shrunk to a measly $832 million against over $2.25 billion during the corresponding period, last year. The SBP’s Balance of Payment summary also shows that during the period under review foreign disbursements showed a huge decline of $1.423 billion or 63.10 percent.
“Actually, the country received zero foreign inflows during the second quarter” of current fiscal year, the official sources clarified. The sources went on to say that the foreign funding agencies had disbursed only $832 million during the first quarter under the heads of long-term project and program loans. They said some Rs 483 million came under the IMF’s Emergency Natural Disaster Assistance (ENDA) as part of the Fifth Review which, however, is yet to be completed, while the inflow of $349 million is also centered on specific long-term projects, they added.
Ironically, the sources said that funds-starved Islamabad had not used the foreign loans that came to the country during last financial year. “Rather, these (loans) were used during the current fiscal year,” they revealed. The State Bank’s statistics on the use of funds credit and loans also indicate that the politically-embattled government had used only $132 million of provided IMF funds against $1.172 billion of July-December last year, registering a dip of 1.040 billion or 88.7 percent.
A declining trend in net foreign investment in the country was another area the official sources highlighted. According to SBP, during the first half of FY11 the country had seen a fall of 15.4 percent in net foreign investment that declined to $1.05 billion from the previous $1.24 billion.
According to the central bank, the FDI in the country had dipped to $ 828.5 million during fist six months of current fiscal year against $968.9 million of last corresponding months, registering a slump of 14.5 percent. Foreign portfolio investment had also declined to $ 221.5 million from $ 272.1 million of the last corresponding period.
Citing political and security concerns, the circular debt driven energy crisis and a negative international perception of Pakistan as factors in the downturn in low foreign investment, sources said Pakistan’s failure to follow up on its agreed terms and conditions had also left the country bereft of foreign loans. While the country’s foreign exchange reserves had hit new highs after the receipt of around $733 million under the US Coalition Support Fund, the pledges from the Friends of Democratic Pakistan (FoDP) are yet to be fulfilled.
The sources said FoDP composed of 26 countries, including Japan, Saudi Arabia and other countries had pledged around $5.3 billion in Tokyo in April 2009 to be delivered over three years. The friends had also pledged some $3.5 billion in addition to the figure of $5.3 billion, they said. “Some $2.0 billion of the additional pledges were to come to Pakistan during last fiscal year, but it did not,” they said.
They said the country’s receipts under the floods aid accounts were also in the shape of relief goods ranging from $400 to $500 million only. “No loans are coming to the country as the IMF has also stalled its remaining tranches after postponement of the reforms program by Pakistan,” the sources said. They added that the introduction of reformed GST and curtailment of power subsidies were the key requirements of IMF which remain unadressed.
