Pakistan faces 'serious' funding pressures
A likely decline in Pakistan’s foreign exchange reserves is putting it on an 'unsustainable' path, a senior ADB official says
Pakistan is on a clearly unsustainable economic path that could be driving the country towards running out of money, a senior Asian Development Bank official told Emerging Markets on the sidelines of the Delhi conference.
Klaus Gerhaeusser, director general of the ADBs central and west Asia department, pointed to serious and immediate pressures on the current account side facing Pakistan in the months ahead.
Pakistan faces repayments to the International Monetary Fund (IMF) totalling $700 million between elections scheduled for 11 May and the end of the financial year at the close of June.
Gerhaeusser said that would bring Pakistans foreign exchange reserves down to $6 billion at best, from just north of $6.5 billion at present. There are pressures on [Pakistans authorities] from all sides, he said. The availability of reserves is a serious and binding constraint.
The ADBs Pakistan country director, Werner Liepach, warned in March that the country was running out of money and would need to secure loan commitments of up to $9 billion by the end of the year. Liepach said Pakistan faced a critical balance of payments situation, noting that the country has enough hard currency to cover only two months of imports.
Even that number has fallen by the end of April Pakistans hard currency reserves amounted to only around 45 days worth of imports. The IMF considers between two and three months imports coverage the bare minimum required for any developing country seeking to cushion itself against sovereign bankruptcy. The way they are going, the path they are on, is clearly unsustainable, Gerhaeusser added.
|More from Emergingmarkets.org|
|Read the latest news stories here|
|Click here to read the latest features|
|Register for free to receive the weekly newsletter|
The ADB official said the first order of business for a new Pakistan government on 11 May would be to call the IMF and ask for working capital. The IMF is the obvious solution, he said. They provide clear measures that can resolve [the countrys] financial issues, providing the country with dollar reserves and helping trim its massive deficit. The IMF declined to comment yesterday.
Pakistans economy is set to expand this year by 3.3% low for a developing Asian nation. Its fiscal deficit peaked at 8.5% in 2012 and is on track to finish the year at around or above 7.7% providing further serious pressures on the current account side, Gerhaeusser said.
Earlier, Liepach warned that Pakistan needed at least $6 billion to $9 billion before the end of the year. Pakistan media reports say a new set of leaders sworn in at the end of next week are likely to ask for at least $5 billion in immediate loans from the IMF. In 2008, the country secured an $11 billion loan from the fund, but the programme was suspended in 2011 after economic targets were missed.
Once an IMF loan is secured, the ADB has up to $400 million ready to channel into Pakistans social security system. This would be part of a sustainable scheme that includes the issuance of identity cards, and which is designed to help the poorest of the poor, Gerhaeusser said. There is a lot more [multilateral] support that could [flow in once] the IMF loan is in place.
- Follow us on twitter @emrgingmarkets
CORRECTION: An earlier version of this article incorrectly stated that Pakistan's current account deficit peaked at 9% in 2012. In fact, its fiscal deficit peaked at 8.5% last year.