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Bitter pills

Despite having firm commitments of heavy funding, roughly $26 billion, the government is unlikely to get any major injection of foreign capital from traditional lenders with in the next four months which will restrict its options and push it to rely on foreign commercial loans and floating Euro Bonds to meet external financing needs. Advisor to Prime Minister Miftah Ismael told to an English daily newspaper that the option to float more Euro Bonds “still remains on the table” , although the Ministry of Finance withdrew its summary for this issue from the federal cabinet.

Ismael held a couple of internal meetings in recent days to review the inflow of foreign financing over the next few months to the closing of financial year. However, the results were not surprising. The economic affairs division did not show any abnormal hike in foreign inflows. The anticipated financing gap is $ 6 billion for the next four months and the finance ministry has already taken more commercial loans to cushion the central bank declining foreign exchange reserves. Inflows from the largest multilateral lenders World Bank (WB) and Asian Development Bank (ADB) remained below the budgetary projections as both the lenders would not like to give any budgetary support due to deterioration in the major economic indicators which the WB enumerated in its report “South Asia Focus Fall “released in August last year. The WB suggested workable measures to correct the macroeconomic imbalances to sustain at least the present level of economic growth. But the Planning Minister Ahsan Iqbal after attending the joint WB and IMF meeting  slapped a sarcastically colored repudiation in their face in a press conference held in Pakistan’s embassy in Washington instead of conceding the sagacious advice of the international lenders. The unrealistic response of the minister has compelled the WB and ADP to inform the government that release of project loans will depend on the actual progress on the ongoing schemes. ADB has released $ 550 million against the promised disbursement of $ 1 billion. Pakistan has received less than $220 million from WB against the commitment of $ 1.04 billion.

The external situation became precarious in January when the imports peaked at $ 5.6 billion-the highest ever in 70 years. The ballooning trade bill necessitates measures like heavy regulatory duty and non-tariff barriers to curb imports in the short run. The long term solution lies in locally manufactured import substitutions. But for that the ill conceived fiscal policy of the past 10 years has to be drastically changed to improve the economic environment. The 5 percent depreciation of rupee in December, 2017 also could not do wonders. The foreign exchange reserves of the State Bank of Pakistan (SBP) declined to $ 13.1 billion. Overseas Pakistanis remittances have shown a modest growth of 3.55 percent. Former Governor SBP, Dr.Ishrat Hussain has called for more trade with China in Chinese yuan in order to lessen dependence on US dollar. Although IMF has included yuan in the basket of established major currencies for granting loans alongside US dollar, European Union Euro, Japanese yen and British Pound, yet Pakistan exporters and importers prefer bulk of their foreign trade in US dollar, Euro and Pound. They did not take interest when SBP announced auction of yuan twice last year. Perhaps they do not foresee it to be strongly established major currency in view of the likely currency war between China and the United states.

Firm commitments from international creditors and donors that would remain undisbursed by the end of current fiscal year are $ 26 billion. The amount includes roughly $ 10 billion from the multilateral lenders, $ 12 billion from the individual countries and around $ 4 billion in grants. High debt servicing has damaged the country’s image and credit worthiness at global level. One of the top credit ranking agencies Fetch has changed the economic outlook of Pakistan from stable to negative. The Business Community has also confirmed the assessment of global credit ranking agencies. The trade bodies have expressed concern over r rising debt servicing, saying that high repayments of foreign debt have already put a negative impact on the country’s’ liquid foreign exchange reserves, forcing the country for more borrowing from the international market.  Multan Chamber of Commerce and Industry (MCCI) President, Malik Asrar Awan said that Pakistan may need massive foreign inflows for which boosting exports should be the priority. The senior executives of Islamabad Chamber of Commerce and Industry (ICCI) have expressed grave concern over the government policies which are harmful to industrialization because they will convert the country into trading nation of foreign goods. Lahore Chamber of Commerce and Industry (LCCI) had given a sharp critique on the reckless borrowing from international donor agencies and polities of vitiating the economic environment. The government must review its fiscal and monitory policies by taking input from the trade bodies.

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