Pakistan remains in firefighting mode despite availing a $6.7 billion loan from the International Monetary Fund (IMF), as the country received about $1.5 billion or one-fourth of the projected annual foreign funding in the first half of the current fiscal year, underscoring grave challenges for the government in balancing its books.
Receipts for the July to December period of fiscal year 2013-14 stood at $1.5 billion or just 26% of the annual estimate of $5.8 billion, according to documents released by the Economic Affairs Division (EAD).
Out of the $1.5 billion, a sum of $273 million was received in grants, while the remaining was in the form of loans.
The less-than-projected foreign loans have increased external financing requirements that remain significantly higher, much more than the official foreign currency reserves of $3.18 billion that the State Bank of Pakistan (SBP) currently holds.
With this, the chances of an upward revision in the current account deficit target for the second time have increased, according to analysts. Earlier, the IMF revised the current account deficit projection for the current fiscal year from $1.3 billion to $2.3 billion.
Experts believe that the deficit will remain close to $3.5 billion by the end of June this year.
In September last year, Pakistan got approval for the $6.7 billion bailout package from the IMF to avoid a looming default. But the IMF’s decision to disburse the amount in 12 quarterly tranches of roughly $550 million each eroded the benefits that the government was expecting.
The IMF has so far disbursed about $1.1 billion, which is less than what the country has returned to the lender in repayment of the 2008 loan. In the remaining period, the IMF is expected to release two more tranches, provided the country successfully completes the quarterly reviews.
The government seems desperate as it has decided to tap international bond markets without caring for the price that it would have to pay. It is contemplating floating a euro bond next month.
Of the foreign funds, the United Kingdom provided the largest component in aid, amounting to $138.2 million in grants. It had promised to give $224 million in the fiscal year. The assistance mainly came for the Benazir Income Support Programme in addition to education projects in Punjab.
The US disbursed only $31 million under the Kerry-Lugar package, according to official documents. The disbursement was 15% of the annual budgeted amount of $212.7 million.
Flow of funds from Japan, the Asian Development Bank (ADB), the World Bank (WB) and other bilateral lenders was far below estimates. Japan gave $30.7 million or less than a tenth of the projected assistance of $325.8 million, according to the EAD.
Japan is sceptical about Pakistan’s commitment to economic and governance reforms and has linked restoration of budgetary support with the government’s ability to successfully complete the second review of the $6.7 billion IMF programme, said Finance Minister Ishaq Dar last month.
Dar is currently engaged with an IMF team in Dubai where both sides are holding talks under the second review of the programme.
In the first half, aid from China amounted to $186.4 million or 14% of the promised assistance of $1.4 billion for the current fiscal year. It gave a loan of $146.2 million for Chashma III and IV nuclear power plants.
The ADB, the country’s single largest lender, gave $227.7 million or less than one-fourth of the annual commitment of $991 million. The ADB, like the WB, has linked the increase in loans with the government’s ability to introduce meaningful reforms in the energy sector.
The WB gave $214.6 million or just a fifth of the annual commitment, according to the EAD.
The Islamic Development Bank was the only lender that disbursed more than half of the annual commitment. It extended short-term expensive commodity loans of $386 million.
The government also borrowed $100 million from Standard Chartered Bank of the UK to bridge the shortfall.
Published in The Express Tribune, February 7th, 2014.
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