SBP tells banks not to panic as $2.8 billion on its way

The International Monetary Fund (IMF) is concerned over the ongoing political unrest in Pakistan as the its executive board is going to decide the fate of $ 550 million to be released to dollar-hungry Islamabad as a next tranche under the $ 6.7 billion extended fund facility (EFF).

With rupee continuing its southward journey against the US dollar and government’s detractors apprehending that the IMF might withhold the next payment citing the lingering political uncertainty in Islamabad, the country’s economic managers are pinning hope in what a central banker said “built-in” plans that would fetch the federal government at least $ 2.8 billion during next couple of months.

Stressing the need for increasing revenue generation through expanding the country’s narrow tax base (tax-to-GDP-ratio) to make heavily-indebted Pakistan financially self-sufficient, Dr Hamza Ali Malik, Director Monetary Policy Department at the State Bank of Pakistan, said the government under its built-in plan was expecting to receive a couple of billion dollars during the months of September and October.

Giving a breakup, he said, the issuance of Sukuk (Islamic bonds) and Eurobonds on international market was on the cards. While the former issue would fetch the government at least $ 500 million the latter is expected to add to the exchequer around $ 1 billion against the budgeted $ 500 million.

About $ 750 million to $ 800 million are envisaged to be raised through the privatization of energy giant OGDCL. These inflows are in addition to $ 550 million the IMF would be handing Pakistan later next month under its EFF.

“These are big ticket items. Then we have a host of program and project loans coming in from different bilateral and multilateral funders,” Malik told reporters at SBP Thursday.

Terming the ongoing political unrest as a “temporary phenomenon”, the SBP official was upbeat that things would normalise when the prevailing “uncertainty” went away.

Does this uncertainty concern the IMF with which Malik, along with other SBP and government officials, met in Dubai during Aug 6-18 to discuss the fourth review under EFF? “Of course, it is! The IMF is concerned. The government of Pakistan is concerned,” he told Pakistan Today counter-questioning that “And for that matter who is not (concerned) on the developments taking place in Islamabad.”

Asked if this concern would keep the Fund from releasing the next $ 550 million tranche to Pakistan, he replied in negative. “No! I don’t think so. No such thing we discussed in talks with IMF,” Malik clarified, adding Jeffrey Franks’s team would be handing its report to the IMF’s executive board by September 8 which then would meet in last week of September to clear the fund release.

While Franks, leader of the IMF team which met Pakistani delegates in Dubai, dubbed his meetings with Finance Minister Ishaq Dar and SBP Governor Ashraf Wathra as “useful” in his August 18 statement, the declaration of self-styled “revolution” and consequent political instability in the federal capital are taking a heavier toll on the country’s fragile economy.

The week-long standoff between the PML-N led federal government and Pakistan Tehreek-i-Insaf (PTI) and Pakistan Awami Tehreek (PAT) in the backdrop of so-called “Azadi” and “independence” marches has adversely impacted sentiments on the country’s stocks and money markets.

While the equity market had to brave a historic slump of more than 1300 points on a single day (Aug 11), the rupee has depreciated to Rs 101 against the greenback from Rs 98 within a week-time.

On Thursday the State Bank notified Rs 101.08 as inter-bank exchange rate for the dollar compared to Thursday’s Rs 100.95. On the kerb market the dollar traded at Rs 101.

This devaluation of Pak rupee led to some risk aversion on the country’s otherwise booming stocks market. “Rupee fall and reports on deadlock in consultative talks impacted the sentiments later in the trading session,” viewed Ahsen Mehanti, a director at Arif Habib Corp.

SBP director Malik, however, sees the glass half full saying “Our (economic) fundamentals are strong.” The central bank, he said, had “managed” to stabilise the money market through “talks” only. “We assess the market through talks only. We tell the banks not to panic as we have enough (dollar) inflows to come,” said the SBP official.

If the expected $ 2.8 billion inflows materialise the country’s foreign exchange reserves, which had slid below record $ 3 billion in January last year, would swell beyond $ 16 billion.