International Monetary Fund (IMF)

October 21, 2012
Govt is trying to counter outflows with inflows to avoid pressure on forex reserves. ILLUSTRATION: JAMAL KHURSHID


The government is locked in frantic diplomatic efforts in order to secure $1.5 billion in the least possible time to avoid the likely resurgence of a balance of payments crisis due to an upcoming lump-sum repayment to the International Monetary Fund (IMF).

Efforts include convincing the United States to reimburse $680 million under the Coalition Support Fund, and the finalisation of a short-term loan from the Islamic Development Bank (IDB), according to finance ministry officials. Saudi Arabia is also expected to release a $100 million grant that it promised during Prime Minister Raja Pervez Ashraf’s visit to the Kingdom, a senior finance ministry functionary told The Express Tribune on condition of anonymity.

Last year, the government had signed a $256 million short-term loan with the IDB. Pakistan will start importing oil very soon using the loan, which will provide relief on account of the oil bill. The official said the government was negotiating a fresh loan with the IDB, but the exact amount has not been finalised yet. He expected that the loan may be in the range of $300 million.

He added that the country is scheduled to pay $1.2 billion to the IMF in three instalments by February next year. In November, the government will return $500 million to the Fund, while the next big payment – totalling $550 million – will become due in February. A third lump sum payment of $500 million will be due in May next year. In the current fiscal year, Pakistan will return a total of $2.9 billion to the IMF, out of which it has paid $600 million so far. In the last fiscal year, the government returned $1.3 billion to the IMF.

The government is trying to counter outflows on account of IMF payments with inflows to avoid any pressure on foreign currency reserves held by the central bank.

Amid fears of defaulting on international payments, Pakistan had entered into a programme with the IMF in the fall of 2008. Till 2010, it has borrowed $7.4 billion from the Fund, while $3.4 billion remained undisbursed due to the non-implementation of crucial reforms.

According the International Monetary Fund’s assessments, Pakistan’s net foreign currency reserves, excluding private reserves held by commercial banks, will fall to $7.8 billion by the end of June 2013. The government’s own assessment puts that figure at $8 billion. By adding commercial banks’ reserves, total foreign currency reserves held at that time will be over $11 billion.

At present, Pakistan’s total reserves come to $14.4 billion, out of which the central bank holds $9.9 billion, according to figures released by the State Bank of Pakistan (SBP).

The IMF has said that Pakistan may manage to honour all international payments for the current fiscal year without a crisis, provided it receives projected inflows in a timely manner. However, the Fund assesses that it will be difficult to avoid a balance of payment crisis beyond June 2013, suggesting that a need may arise for a second bailout programme.

Experts, however, warn that a balance of payment crisis may surface after February only, which will not only drain the central bank’s reserves, but will also bring the rupee under pressure. However, officials insist that there is no need to panic. They say these are difficult times, but there is no ‘crisis-like’ situation on the external front. An official added that internationally, the rupee is appreciating after adjustments for inflation, and oil payments’ settlements are being made from commercial banks’ reserves.

Multilateral institutions like the World Bank and the Asian Development Bank (ADB) have withheld budgetary support loans from Pakistan due to deteriorating economic conditions. However, these institutions are still extending project loans. The finance ministry expects to receive at least $2.2 billion in project loans this year; these payments will help repayments on account of other project loans to the same institutions.

Despite the ADB’s reservations, the authorities also expect to strike the deal for a $1 billion project loan next month, to be used in financing coal-based power plants.

Published in The Express Tribune, October 21st, 2012.