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

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

Fears have risen about Pakistan’s stuttering economy as its currency fell nearly 8% against the US dollar in the last trading week, while the country’s forex reserves stand below $10 billion with inflation at the highest in more than a decade.

“Our external financing needs over the next 12 months are fully met, underpinned by our on-going IMF programme,” the acting governor of Pakistan’s State Bank, Murtaza Syed, told Reuters in an emailed reply to questions.

Pakistan last week reached a staff level agreement with the International Monetary Fund (IMF) for the disbursement of $1.17 billion in critical funding under resumed payments of a bailout package.

“The recently secured staff-level agreement on the next IMF review is a very important anchor that clearly separates Pakistan from vulnerable countries, most of whom do not have any IMF backing,” he said.

However, the lender’s board needs to approve the agreement before the disbursement, which is expected in August, before which there remain prior policy actions to be fulfilled, according to sources familiar with the matter.

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

Syed played down those concerns saying Pakistan’s public debt profile, one of the “main flashpoints” for markets these days, is a lot 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, of relatively long maturity, and on easier terms since it is heavily skewed toward concessional multilateral and official bilateral financing rather than expensive 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 of the financing was shown from multilaterals, oil payment facilities, and rollovers of bilateral financing, and the heaviest financing needs were in Q2 of FY2022-23.

The presentation also compared the situation in Pakistan to Sri Lanka, which recently defaulted, and said: “Pakistan tightened monetary policy and allowed the exchange rate to depreciate as soon as external pressures began.” It added that Sri Lanka’s fiscal position had been much worse than Pakistan’s, with primary deficits three to four times larger since the pandemic.

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

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

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

Pakistan’s finance minister on last Wednesday blamed the rupee’s slide on political turmoil, saying he expects market jitters over the currency’s sharp decline to subside soon.

“The rupee downturn is not due to economic fundamentals,” Finance Minister Miftah Ismail told Reuters. “The panic is primarily due to political turmoil, which will subside in a few days.”

Pakistan is also suffering from fast depleting foreign reserves, a declining currency and widening fiscal and current account deficits, with the rupee losing 18% of its value since Dec. 21.

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

On Wednesday morning, the rupee was trading at 225 per dollar, having ended Tuesday at 221.99 after FITCH ratings agency revised its outlook for Pakistan sovereign debt from stable to negative - though it affirmed Long-Term Foreign-Currency and Issuer Default Rating at “B-”.

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

Paracha said he did not see any reason for the depreciation in the rupee other than possible IMF pre-conditions.

Neither the government nor the IMF have said anything about the need for any further depreciation of the currency, though Pakistan recently adopted a market-based exchange rate under advice from the IMF under the economic reforms agenda.

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