LONG OVERDUE!

Dollar-starved Pakistan on Wednesday finally received the long-awaited $ 1.118 billion from the United States under the long-withheld Coalition Support Fund (CSF), confirmed the State Bank of Pakistan on Thursday.
“We have received $1.118 billion from the US under the Coalition Support Fund,” said Syed Wasimuddin, chief spokesman of State Bank of Pakistan. The central bank, the spokesman said, had received the money “last night” (Wednesday). Islamabad, after the much-awaited funds transfer, saw the country’s depleting foreign exchange reserves shooting up to a provisional $15.692 billion as reflected by the SBP figures up to July 27. According to SBP data, during the past week the country’s dollar reserves shrank by around $90 million on account of various payments and repayments made by the central bank.
Added to the State Bank’s July 27’s holding of the greenback, the CSF injection increased the bank’s $10.139 billion reserves to $11.257 billion.
The commercial bank possessed $4.435 billion up to the given date. A central banker, however, said the exact volume of the country’s dollar reserves would appear next week when the SBP would make its figures public.
The fresh receipt from the US led to some encouraging positives in the crises-hit Pakistan. The investors’ confidence on the stocks market got a boost that, partly, made the KSE100-share index gaining 14 points. “Hopes for release of $1.12 billion payment from the US against services to coalition forces played a catalyst role in bullish sentiments” on the Karachi Stock Exchange, viewed Ashen Mehanti, a senior stock observer and director at Arif Habib Securities. Economic observers, however, were less upbeat about what they called it a short-term phenomenon. Asked if the CSF receipt would put Pakistan’s troubled external sector back on track, the analysts replied in an affirmative, but with ifs and buts.
“Well it does, but it’s all short-term phenomenon,” said Khurram Schehzad, head of the research at InvestCap.
The analyst said the $1.118 billion coalition fund was Pakistan’s own money which would “hardly enough” to pay back the IMF tranche by December 2012.
By the end of this calendar year (2012), Schehzad said the inflation would be in a full swing again on the back of the holy month of Ramadan and oil price reversal. The analyst cited an expected drought due to low rainfall and the resultant increase in commodity prices as other challenges to come in the months ahead.
“Russia banned wheat exports because of the same reason,” he said. The above factors were in addition to the unprecedented government borrowing levels that, he warned, were “cooking up more inflation”.
“So play safe and expect 50 basis points or up to a 100bps maximum, though biased MPS committee may go more aggressive as it did earlier (by slashing the discount rate by 150 bps),” Schehzad said.
Asked if he meant the next rate cut must not exceed the 100bps, the analyst replied in negative, saying, “I am only saying the State Bank should take everything into account while formulating the monetary policy statement.” Schehzad explained “everything” as factors like Pakistan’s formal re-entry into the IMF program, rising inflation ahead as well as the government’s massive budgetary borrowings from the banking system, a permanent setback for a double-digit price hike in the country. Others came up with more or less the same views terming the current transfer as a short-term relief. “This would provide relief to our external sector for a few months,” said Mohammad Sohail, a senior analyst and chief executive officer of Topline Securities, one of country’s leading brokerage houses.
Asked what long-term measures, he thought, Islamabad should take to ally the country’s balance of payment woes, the analyst proposed a higher tax-to-GDP ratio (currently 9 percent), increased exports, more foreign investment and long-awaited privatization of the loss-making public sector enterprises. Pakistan, indebted externally by over $ 62 billion, saw its current account deficit widening beyond $4.5 billion during FY12 against a surplus of $214 million the country witnessed in FY11, primarily on the back of increased cotton prices on the international market.