Pakistan’s funding needs fully met for this year, says CB chief

A currency trader counts US dollars for a customer at a bureau de change in Karachi. Associated Press

Pakistan’s external financing needs of $33.5 billion are fully met for the 2022/23 financial year, the central bank chief said on Saturday, adding that the market’s “unwarranted” worries about its financial situation will dissipate. in a few weeks.

Fears grew over Pakistan’s stuttering economy as its currency fell nearly 8% against the US dollar in the past week of trading, while the country’s foreign exchange reserves sit below of $10 billion with inflation at its highest in more than a decade.

“Our external financing needs over the next 12 months are fully met, supported by our ongoing IMF program,” Acting Governor of the State Bank of Pakistan Murtaza Syed told Reuters in a response by e-mail with questions.

Pakistan last week reached a staff-level agreement with the International Monetary Fund (IMF) for the disbursement of $1.17 billion in critical financing as part of the resumption of bailout payments.

“The recently reached staff-level agreement on the next IMF review is a very important anchor that clearly separates Pakistan from vulnerable countries, most of which do not receive any support from the IMF,” he said. he declares.

However, the lender’s board must approve the deal before disbursement, which is expected in August, before which there are still political prerequisites to be taken, according to people familiar with the matter.

But some question Pakistan’s ability to meet external financing needs, including debt obligations, despite IMF funding.

Syed played down those worries, saying Pakistan’s public debt profile, one of the “major hotspots” for markets these days, is much better than in vulnerable countries with high public debt.

The country’s public debt to GDP ratio is 71%.

“Pakistan’s external debt is low, relatively long in maturity and on easier terms as it is heavily skewed towards official multilateral and bilateral concessional financing rather than costly commercial borrowing,” he said.

In a recent presentation to international investors reviewed by Reuters, Syed said $33.5 billion in gross external financing needs would be met “comfortably” with $35.9 billion in available financing.

Most funding came from multilateral institutions, oil payment facilities and bilateral funding renewals, with the largest funding needs occurring in the second quarter of FY 2022-23.

The presentation also compared the situation in Pakistan to that of Sri Lanka, which recently defaulted, and said, “Pakistan tightened monetary policy and let the exchange rate depreciate as soon as external pressures started. He added that Sri Lanka’s fiscal situation was much worse than Pakistan’s, with primary deficits three to four times larger since the pandemic.

Syed said Pakistan was unfairly grouped with more vulnerable countries amid panic in global markets due to a commodity supercycle, US Federal Reserve tightening and geopolitical tensions.

“Markets are reacting to these shocks in an unfairly broad way, without paying enough attention to Pakistan’s relative strengths,” he said.

“We expect this reality to lift in the coming weeks and unwarranted fears around Pakistan to dissipate.”

Last Wednesday, Pakistan’s finance minister blamed the rupiah’s decline on political unrest, saying he expects market jitters over the currency’s sharp decline to ease soon.

“The rupee’s decline is not due to economic fundamentals,” Finance Minister Miftah Ismail told Reuters. “The panic is mainly due to the political unrest, which will subside in a few days.”

Pakistan is also suffering from a rapid depletion of foreign exchange reserves, a declining currency and widening budget and current account deficits, with the rupee having lost 18% of its value since December 21.

The rupiah fell 2% on Monday and 3% on Tuesday despite last week’s staff level agreement with the International Monetary Fund that would pave the way for a $1.17 billion disbursement as part of the recovery bailout payments.

The rupee was trading at 225 to the dollar on Wednesday morning, having ended at 221.99 on Tuesday after ratings agency FITCH revised its outlook for Pakistan’s sovereign debt from stable to negative – although it confirmed long-term foreign currency and issuer default rating at “B”. -”.

“There is panic in the market, I am afraid it (the rupee) will fall further,” Zafar Paracha, secretary general of a foreign exchange association, the Exchange Companies of Pakistan, told Reuters.

Parsha said he saw no reason for the rupee’s depreciation other than possible preconditions from the IMF.

Neither the government nor the IMF have said anything about the need for further currency depreciation, although Pakistan recently adopted a market-based exchange rate on the advice of the IMF under the economic reform program.

Ismail said imports, which have put pressure on the rupee, have been curbed and the current account deficit contained in the first 18 days of the new fiscal year this month, and pressure on the rupee would weaken in the future. He told a news conference that the IMF estimated there was still a $4 billion funding gap that would be filled by various friendly countries which he declined to identify.

Michael J. Birnbaum