IMF is of the view that Pakistan will require $3.1 billion just to cover the
current account deficit
The International Monetary Fund (IMF) has assessed Pakistan’s gross external financing requirements at $10.8 billion for the new fiscal year. The funding needs have been calculated on the basis of projections made by IMF and the State Bank of Pakistan.
Most of the funds are needed to return the loans that the country has taken from foreign lenders over the years, shows a latest IMF report released after completion of the third review of Pakistan’s economy under the $6.7 billion bailout programme.
The huge appetite for $10.8 billion will keep policymakers on their toes throughout the year as some of the sources of financing that the government is banking on for bridging the gap appear risky and uncertain, said a report in the local media.
The IMF is of the view that Pakistan will require $3.1 billion just to cover the current account deficit. The report said the projection for the current account deficit seemed to be rosy as some of the anticipated inflows, particularly the Coalition Support Fund (CSF) disbursement by the US, are “historically risky”.
Like the previous year, the government in the new fiscal year 2014-15 expects to receive $1.4 billion in CSF, which reflects the expenses the country makes on defence and logistics in the global war against terrorism and is later on paid by the US.
Against the estimated CSF of $1.4 billion for the last fiscal year, the government received only $674 million in two tranches. Hopes for a third tranche of $375 million in the last quarter of the year were dashed, which would increase the current account deficit by the same amount.
The report said the delay in launching an operation in North Waziristan was a reason for stopping the release of the promised $375 million as the Obama administration had no concrete argument to press the Congress to give the go-ahead for the payments.
The chances for CSF disbursement in 2014-15 appear to be bright, but it is not clear whether the US will release the entire budgeted amount.
According to the report, the government needs $5.4 billion to retire medium and long-term debt including $1.3 billion to the IMF this year. It requires another $3.6 billion to pay back loans acquired from other creditors like the World Bank and Asian Development Bank (ADB).
An amount of $2.3 billion will also be needed to return short-term loans that the PML-N government has received in the last one year.
Against this huge financing gap, the report puts available financing at $6.5 billion. It expects the country to receive $4.3 billion on account of foreign direct investment and privatisation proceeds.
The estimate looks highly ambitious as the country has been facing challenges in attracting foreign investment because of the prevailing law and order situation and bureaucratic hurdles.
To fill the remaining gap of $4.3 billion, the IMF and SBP have assumed that the country will get the amount as part of programme financing from the IMF, World Bank and some other foreign lenders.
However, what the report does not enlist are the conditions associated with these loans that often lead to delay in releases and put foreign currency reserves under pressure.
The IMF is expected to make gross disbursement of $2.23 billion to Pakistan in the new fiscal year. Of this, the country will return $1.3 billion, leaving net IMF support at only $937 million.
The World Bank is likely to provide $1.3 billion in policy loans with no contribution seen from the ADB.
Under the programme arrangements, Pakistan is also supposed to increase its gross official reserves to $13.3 billion by the end of the fiscal year, an increase of $4.1 billion over the reserves held on June 30 this year.
However, the report pointed out that in the presence of $10.8 billion external financing needs, it would be a huge challenge for the central bank to boost its reserves by $4 billion.
