Pakistan inching towards fresh IMF loan

The economic managers may be beating the victory drums over the accumulation of record foreign exchange reserves, but the economic observers think otherwise.
According to State Bank of Pakistan (SBP) figures, the country’s dollar reserves have aggregated to $17.898 billion by the 27th of this month, which have so far provided the rupee enough strength against international currencies, most prominently the dollar. But, the analysts foresee that the economically strangulated country would ultimately end up seeking a fresh Stand-By Agreement (SBA) from the International Monetary Fund (IMF) which is already disenchanted with Islamabad for the latter’s inability to comply with its conditions for the 2008’s $11.3 billion SBA. “Pakistan would have to take fresh loan from the IMF, negotiations for which would start shortly,” said Dr Shahid Hassan Siddiqui. Not upbeat on the release of balance of $3 billion by the IMF, the renowned economist views that Pakistan might find itself in hot waters by the end of current financial year which, unlike FY2011, would not bring good news on the exports front. “This year, the exports volume would be much lesser than that of 2011,” he said.
Last year, exports fetched over $25 billion for the dollar hungry Pakistan, apparently auguring well for country’s ever widening trade deficit that stood at $12.434 billion in the year under review (FY11), compared with $13.226 of the preceding FY2010. However, the analyst is cautiously seeing the slowing down of the inflow of foreign financing into Pakistan under various heads like Coalition Support Fund (CSF), stalled IMF’s SBA tranches etc that, he believes, might prove to be major attributive factors in pushing Islamabad towards a new loan. The US, which itself is faced with a deepening economic crisis with Republicans suggesting expenditure cuts to the ruling Democrats, has recently cut down $800 million military aid to Pakistan while the reimbursement of $1.3 billion war expenses also seems to be in the doldrums at least in the near future, owing to the sour Pak-US diplomatic ties. According to SBP data, during the first month of 2011, July, Pakistan received only $8 million, compared to $38 million the country received in the same month of 2010. “You have to start repaying the (half-paid) IMF loan from 2012 amid very slower external financing. This would put pressure Pakistan’s dollar reserves that would further put the rupee-dollar parity under pressure,” the analyst said.
Some economic observers deem the current record foreign exchange reserves of Pakistan as unreliable given the billions that will potentially drain out under the head of debt-servicing in the days ahead. “If you see these (foreign exchange) reserves in the background of the country’s liabilities,” said another analyst, Asfar bin Shahid. A.B Shahid said last year Pakistan, reportedly, paid $5.73 billion to service its debts and was due to repay another $3.4 billion to the IMF in January 2012. “Once these payments are made you would end up with a meager $3 billion, as the current 17 billion dollars are inclusive of $3.5 billion that belongs to the (commercial) banks,” he said. On the government’s oft-repeated contention about the healthy inflow of worker remittances that accounted for over $11 billion during 2011, the analyst said that would be adjustable with the trade deficit. “Remittances are not meant for the debt servicing,” he added. Pakistan is scheduled, from 23rd to 25th of this month in the American capital Washington D.C, to sit around the table with the IMF officials to convince the latter on the release of 5th and 6th tranches. The analysts, however, have a pessimistic view of the meeting, saying Islamabad should go for permanent remedial measures at home. “The law and order situation, first of all, must be improved to prevent the ongoing flight of capital from the country. Approximately $31.7 million portfolio investment went out from the stock market during July-August only,” A.B Shahid said. The analyst said the local investors’ confidence must be restored so they could assure the foreign buyers of a timely shipment of their orders.