Country needs $36b in foreign loans

By Salman Siddiqui
Published in The Express Tribune on May 29, 2022

KARACHI: Finance Minister Miftah Ismail has announced that Pakistan is expected to reach an agreement with the International Monetary Fund (IMF) in June, as the country is projected to need $36-37 billion in foreign financing in the next fiscal year.

He revealed that at present the government was not considering raising fresh foreign debt from the global capital market and commercial banks after the country’s international bonds lost almost one-third of their value, while their yields went up significantly.

He said that instead of economic growth, controlling inflation was the top priority of the government.

“Inflation control will lead to economic growth,” he remarked while speaking at a webinar on “National Dialogue on Economy: The Way Forward for Pakistan”, organised by Nutshell Conferences and Corporate Pakistan Group on Saturday.

“Agriculture remains the first line of defence for Pakistan,” the minister stressed. However, the country will still import 3 million tons of wheat, 4 million tons of cooking oil worth $6 billion and 5 million bales of cotton to run the economy in the next fiscal year 2022-23.

Giving the breakdown of the external financing requirement, Ismail said “Pakistan is to repay $21 billion in foreign debt in the next fiscal year.”

Besides, the country will require another $10-15 billion to finance the current account deficit. The government is also targeting to boost the country’s foreign exchange reserves by $5 billion to $15 billion next year.

“So, it is a must to enter the IMF loan programme (worth $6 billion) to arrange the required financing,” Ismail said.

The value of Pakistan’s US dollar-denominated international bonds has shrunk by around 30% – like $1 bond was trading at 70 cents when the PML-N led coalition government came to power in early April. “Now it is trading at 65 cents,” he said.

“This means we cannot float Eurobonds in the world market to raise fresh funds, nor can we go to (global) commercial banks (right now),” the minister said.

At present, the viable option is to borrow from the multilateral and bilateral lenders.

“To take loans from the multilateral institutions, it is a must to be in the IMF programme. This unlocks financing from the World Bank, Asian Development Bank … and particularly the Chinese-led Asian Infrastructure Investment Bank … everyone is waiting for the revival of IMF programme,” he said.

Prime Minister Shehbaz Sharif also went to Saudi Arabia and other friendly countries to acquire financing from them. “They are ready to extend loans, but only after we enter the IMF programme.”

The IMF has linked the revival of its loan programme to the removal of subsidy on petroleum products. “I am also in favour of ending the subsidy … as the economy cannot afford to pay Rs120-140 billion per month in energy subsidy.”

The subsidy amount is three times the cost of Rs41-42 billion a month for running the civilian government, he pointed out.

“This (energy subsidy) is unaffordable … we could become bankrupt,” the finance minister remarked. Owing to that, the government initiated the process of reversing the subsidy with effect from Friday (May 27).

The subsidy was being consumed more by the rich running big cars and less by the poor, he said. “That makes no sense.”

Ismail reiterated that PM Sharif announced a Rs28 billion package for the poor, under which Rs2,000 would be provided per household to protect them from the spike in inflation.

“Everyone earning less than Rs40,000 per month is eligible for the financial assistance of Rs2,000 per month.”

Achieving higher economic growth in a growing nation with young population was not a big task, “but achieving sustainable economic growth without current account deficit is tough,” Ismail said.

He underscored the “need to change focus of our policy … such as no more import-led growth, manufacturing for export purposes and a revolution in the agriculture sector.”

The country really needed to increase agricultural yields to cut the import bill, he emphasised.

The finance minister invited all political parties to frame the Charter of Economy, which could include the minimum economic agenda by setting aside the political differences.

The charter may include consensus on privatising the loss-making state-owned enterprises.

Speaking on the occasion, former finance minister Shaukat Tarin declared that he was also in favour of a national-level Charter of Economy.

“We will consider formulating the Charter of Economy only after general elections are held,” he said.

Tarin stressed the need to reduce the gap between import payments and export earnings with focus on IT exports, which grew fast during the previous government’s tenure.

“IT exports can be increased to $50 billion a year in five to six years … and reduce the gap between imports and exports.”

Tarin called for fast-tracking work on the Special Economic Zones (SEZs) to attract foreign investors.

He also spoke about increasing agricultural yields, boosting the tax-to-GDP and savings-to-GDP ratios and adopting an appropriate rupee-dollar exchange rate for “sustainable economic growth.”

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