November, 29, 2023
Dollars at Risk: Pakistan's External Financing Plan Worries

Dollars at Risk: Pakistan’s External Financing Plan Worries

Infostani Reporter-There is a fear of not getting about 4.5 billion dollars from Pakistan’s external financing plan, while the budget may increase by another 1 trillion rupees due to underestimating the cost of loans. This situation may become a serious problem during the first review of the IMF program. Sources in the Ministry of Finance said that the financing gap of about $4.5 billion dollars and the under-allocation of about Rs.1 trillion for interest payments for the current fiscal year are the result of unrealistic budget estimates.

In recent days, authorities have conducted several hearings to resolve these issues. Sources have suggested that failure to address these issues may present challenges when the $3 billion IMF program undergoes its first review in November this year. It is a cause for concern that foreign loans totaling at least $4.4 billion may not be accessible, in contrast to the estimated external financing of $20 billion.

The matter has been raised at the highest level in the Ministry of Finance and thereafter a series of meetings between the Economic Affairs Division and the Finance Division have been initiated to bridge the gap. The federal budget and annual external financing plan have become unrealized within three months of their approval. In June this year, The Express Tribune pointed out that the amount allocated for interest payments may fall short of the actual requirements.

Challenges in Securing External Financing for Pakistan in US Dollars

The government had estimated to borrow $14.5 billion from foreign commercial banks and recover another $1.5 billion through the issuance of Eurobonds. Sources said that the Ministry of Finance has concluded that due to Pakistan’s low credit rating and high-interest rate environment at the global level, Pakistan will not be able to get non-Chinese trade loans of around $13 billion. However, the finance ministry is still hopeful of securing $1 billion in Chinese commercial financing and about $600 million dollars from other sources. Sources said that the chances of settling the $1.5 billion through floating bonds are also very low.

Due to these factors, the government has started looking for alternative sources of external financing. Other options include raising money through additional borrowing and privatization from multilateral lenders. Last month, Caretaker Finance Minister Dr. Shamshad Akhtar directed the Finance Ministry to revise the financing plan in light of the current economic conditions and specifically seek funds from non-Chinese foreign commercial banks through loans and sovereign bonds. should be estimated.

According to sources, the Economic Affairs Division has been asked to examine the possibility of increasing loans from multilateral and bilateral lenders. The government had estimated $16.2 billion in loans from multilateral and bilateral lenders for the current fiscal year. Pakistan received a total of 5.1 billion dollars in foreign loans in July. Of these, $3 billion came from Saudi Arabia and the United Arab Emirates. The IMF gave 1.2 billion dollars. Loan disbursements under the IMF program have not yet started although the government had hoped that disbursements would begin soon after the IMF loan was approved.

Dollars at Risk: Pakistan's External Financing Plan Worries

Challenges in External Financing and Multilateral Loans for Pakistan

Sources said the World Bank may approve a loan of $350 million under the second (IIRISE) program in the first week of October. Pakistan had requested a loan of 450 million dollars but the World Bank did not agree. Meanwhile, the Asian Infrastructure Investment Bank has once again agreed to provide $250 million in financing to RISE. Earlier, he had refused to give this money until the World Bank approved the loan to Pakistan.

Pakistan is not eligible for expensive BRD financing, as its foreign exchange reserves are currently insufficient to meet at least two-and-a-half months of import requirements. Sources said that due to the establishment of a caretaker government across the country, there is a slowdown in development activities. Because of this, multilateral lenders are unable to release funds. State Bank rules and regulations are also a hindrance to this funding.

If the provinces speed up development activities and the State Bank relaxes its rules, multilateral and bilateral lenders could disburse more than $7 billion during the current financial year. Sources said that the Ministry of Finance is also facing the problem of balance in the accounts as the estimate of 7.3 trillion rupees for interest payments has increased to more than 8 trillion rupees.

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