Pakistan’s current account balance is likely to come under strain again as foreign financing is proving insufficient to meet increasing military and rehabilitation needs. Analysts have termed “unrealistic” the finance minister’s recent shrugging off of the IMF program as Islamabad is seemingly banking on its record foreign exchange reserves (currently $18 billion) to provide immediate fiscal cushion.
Declining inflows: According to State Bank of Pakistan’s (SBP) provisional data, first two months of the current fiscal year (July-August 2011-12) saw a reduction of 76.9 per cent or $217.2 million in the inflow of foreign investment.
Similarly, international creditors and donors extended only $44 million during the said two months, a decline of 67 per cent or $90 million, that too under the head of long-term project loans. According to SBP, during July-August FY12, foreign investors brought only $65.3 million to Pakistan, compared to $282.5 million during the same month last year.
The breakup shows that foreign private and public investment respectively came down from $276.4 million to $62.9 million and $6.1 million to a meager $0.6 million.
Mounting worries: Of the Foreign Private Investment (FPI), foreign direct investment (FDI) contracted from $186.9 million to $112.4 million and portfolio investment dipped from $86.5 million to $46.5 million. Privatisation proceeds of the total FDI amount to zero, as no state asset has been privatised since 2008 when the country received $ 133.2 million.
More worrisome is the fact that ongoing uncertainties on the politico-security and diplomatic front, if not addressed seriously on war footing, will continue to keep the international investors away from Pakistan.
Further, the inflow of foreign disbursements also depicts a negative trend with short-term loans, which include commercial loans as well as credit from Islamic Development Bank (IDB), coming down to zero.
During the period under review, the central bank’s statistics show, the country received only $44 million under the head of long-term project loans, against $134 million under the same head during July-August FY11.
Deficit control: The downward spiral in foreign disbursement has been intensifying Pakistan’s financing woes for at least two fiscal years, FY10 and FY11, during which they declined from $4.134 billion to $2.313 billion.
Moreover, the International Monetary Fund (IMF) still seems unshaken on its unfavorable stance which, despite losing billions of rupees infrastructure to devastating rains and floods, seems, apparently, unwary of the Fund’s further support. Central bank data shows that the first two months of FY12 saw the country’s current account deficit bridging by 81.39 per cent or $827 million to $189 million, thanks to healthy dollar inflows on account of exports and worker remittances. In July-August last year, the deficit was $1.016 billion.
While observes appreciate the government’s efforts at achieving self-sufficiency, few see alternatives to strict austerity measures and reducing unnecessary expenditures in ministries and leakages in public sector enterprises. “If the government really wants to get rid of the IMF, it must cut fiscal waste in all ministries,” an analyst said while talking to Profit.
