KARACHI – The country received a meager 21 percent of the Rs 230 billion foreign finances – the federal government had budgeted for first half of the current fiscal year. According to State Bank of Pakistan, the country received only Rs 48 billion from the external sources to finance the budget during July-December FY11 against the budget estimate of Rs 230 billion for the year.
The huge gap of Rs 182 billion or 79.13 percent between the target and the real foreign receipts certainly makes one put to question efficiency of the budget makers who, by setting such ‘irrational’ budgetary targets, tend to please present rulers at the expense of irreversible fiscal deterioration that is presently haunting Pakistan’s ailing economy. “If these external flows are not released in a timely manner, there is a risk of further substantial government borrowings from the banking system, which will make liquidity management more challenging,” the SBP noted with concern in its Monetary Policy Statement for April-May 2011.
It said that the government had already borrowed substantial amounts, aggregating to Rs 329 billion, during July-March 12 FY11 from the central and scheduled banks through various instruments, in the 3-month Market Treasury Bills. Referring to growing uncertainties in the global economic environment, the regulator warned that popular uprisings in the Middle East and North African (MENA) regions, coupled with an unprecedented earthquake and tsunami in Japan, might pose potential risks to Pakistan’s so-far-strong external accounts. “Turmoil in MENA may also influence the flow of remittances to Pakistan,” it said, adding that “one consequence of these uncertain times has been high international commodity prices, especially of oil.” The bank, however, was jubilant over the fact that, so far, the terms of trade shock had been ‘favourable’ for Pakistan’s economy. It said more than 90 percent of the incremental increase in export earnings during July-February FY11 over the corresponding period of last year had been due to high international prices of exports. “The contribution of high import prices, particularly of oil, to the import bill has been relatively low, but is substantial and rising,” it said.
However, the SBP said, assuming that inflow of remittances would keep its current upward trend for the remaining months of FY11; no immediate risks would be posed to the external current account balance. “The financial account inflows, such as foreign direct and portfolio investments, on the other hand, have remained fairly modest during July-February FY11,” it said. This, the central bank said, was almost half of the level of inflows seen in the corresponding period of last year, which was also small compared to historical levels. “The overall balance of payments position appears to be strong at the moment with a gradual build-up of foreign exchange reserves and a stable foreign exchange market,” it said.
The SBP, however, urged the country’s economic mangers to stay mindful in the coming months of the developments in the external sector, given the prevailing uncertainties with respect to foreign inflows to the country.
