No other option except IMF to avoid default, says Pak minister

Federal Finance Minister Miftah Ismail on Friday admitted that Pakistan was close to default when they took power, adding that they had few options other than to go to the International Monetary Fund (IMF) for an emergency cash injection to keep the country financially afloat.

Speaking to journalists in Karachi on Friday, the finance minister said that they have had to take difficult decisions to ensure the country is financially viable.

On going to the IMF, the finance minister said that they were at a point when even friendly countries were unwilling to extend help unless Pakistan could revive its extended fund facility with the IMF. “Friendly countries are waiting for IMF to approve the package before they help us,” he said.

Referring to the recent import data, he said that many problems were resolved by controlling the country’s imports. He further vowed that the government will not allow imports to increase over the next three months, suggesting that there were tough times ahead for many industries and businesses which are dependent on imports.

Miftah, however, promised that during this period the government will work on charting a sustainable way out of the current crisis. On the recent reduction of dollar rates, he said that there is a positive balance of payment where the country has a higher inflow of dollars compared to their outflow which is contributing to the rupee’s recently demonstrated strength in the market.

The finance minister, however, accepted that raising the prices of petroleum products was unavoidable. He further conceded that raising the prices of petroleum products had contributed to skyrocketing inflation in the country. He added that petroleum stocks were on the lower end with enough diesel for 30 days, petrol for 25 days, and six months of furnace oil.

Talking about budgetary targets, he said that for the ongoing fiscal year, they will have to control the budgetary deficits, i.e. balance incomes versus expenditures.

“I do not know what is the real value of the dollar,” Miftah said while speaking to the media outside the Pakistan Stock Exchange in Karachi on Friday morning. “No one knows that,” he added. “The market determines the value of the dollar.” He said that per the Real Effective Exchange Rate (REER), with the base year of 2012, the rupee is undervalued and the dollar is quite overvalued. “But the US dollar has set a 22-year record of strengthening against global currencies,” he reminded of the greenback’s global strengthening this year.

Meanwhile, the rupee kept up its steady rise against the US dollar as the local currency knocked down the greenback by Rs2.11 maintaining its all-week upward spree in the interbank trading.

The data provided by the forex dealers on Friday revealed that the rupee notched up by Rs2.15 in the morning trade and the US dollar slid to Rs224 by 10am in the interbank trading. But later, the rupee slumped a bit and the dollar rate was closed at Rs224.04.

According to the State Bank, the value of rupee was appreciated by 0.94 percent on Friday.

During this week, the exchange rate of the US dollar has been slipped by Rs15.33. With the appreciation in the value of Pakistani rupee, the burden of foreign loan has lessened by Rs1,750 billion.

On Thursday, the dollar was closed at Rs226.15. The rupee continued to recover in the interbank market. After two weeks of smashing by the US dollar, the rupee fell to its lowest level against the dollar on July 28, closing at 239.94. It then started to bounce back from Friday last and has been gaining since then.

The market is showing confidence in rupee, following the statement by the IMF that Pakistan has completed the last prior action required by the Fund to release the seventh and eighth review. Pakistan is expecting IMF’s $1 billion tranche soon.

Minister of State for Finance and Revenue Dr Aisha Ghous Pasha on Friday said the Pakistani economy was well on the path of recovery as the incumbent government had successfully managed to curtail the ever increasing imports.

The PML-N led government had reduced the import bill significantly by taking prudent measures, she added.

 In April, she said, when the incumbent government took over, the country had no money to buy fuel for generating electricity as the government wanted to minimise power load shedding. This also increased the import bill which led to pressure on dollar. Consequently, the rupee depreciated 23 per cent against the US dollar.

NNI News Network International