July 13, 2023 (MLN): Since Eid Day 2, the country has been receiving the most awaited news amid its dwindling forex reserves which shrank to $4.019bn in June, hardly enough to cover one month of imports. Pakistan was on the verge of default as the IMF program was about to expire on June 30, 2023, and the financial bill fall short to address the fund’s demands.
Consequently, the premier rushed to France to meet the IMF head and the measures taken at the eleventh hour ensured the country avail the Stand-by Agreement (SBA) of the fund to receive $3bn over the course of the next 9 months.
The close shave from default not only provided a face-saving to the coalition government on political grounds but also gave the economy much-needed support. The rollover of Chinese loans worth $1.3 billion raise the SBP reserves to $4.5bn on July 07, 2023. On Tuesday, Saudia Arabia deposited $2bn while late on Wednesday, UAE also provided the dollar-starved economy with $1bn.
Most importantly, the IMF’s Executive Board approved an immediate disbursement of SDR894 million ($1.2bn) for the country. The reserves position which was fragile a couple of weeks back has gained strength to honor upcoming liabilities approximating $25bn in the ongoing fiscal year.
The SBP’s reserves are now expected to cross $8bn in the wake of recent inflows.
Though the liquidity crisis has been averted for the short term, reforms are pivotal for sustainable economic growth as well as for successful quarterly reviews to receive the remaining $1.8bn under SBA in two installments.
The fund stressed on the reopening of imports which may put pressure on the exchange rate and there will be no room for artificially controlling it as the fund will keep a close eye on the proper functioning of the forex market. Restrictive monetary policy is also expected to prevail amid inflationary pressures with inflation touching almost 30% for the month of June’23.
The fund expects structural reforms, especially in the energy sector which has turned out to be a white elephant for the country’s economy. The focus should be on curtailing the mounting circular debt of the power sector by increasing tariffs and better-targeting power subsidies. The increased revenue in the fiscal budget approximating Rs9.4tr is expected to provide fiscal space for bolstering social and development spending.
Reforms are also anticipated to enhance climate resilience especially after the catastrophic floods of 2022, strengthening governance, and improving the ease of doing business to facilitate trade and investment opportunities. The fund also expects that the country will take serious steps to expand its tax base in the upcoming years.
The country also awaits further funding of $1bn from the Islamic Development Bank and RISE-II program financing of $450mn from the World Bank in addition to $250mn from the Asian Infrastructure Investment Bank.
More than $9bn climate-related pledges are also expected to materialize in the SBPs kitty.
The markets remained upbeat post-Eid as the benchmark KSE-100 index inched up by 10% in a matter of just two weeks. Fitch also upgraded the country’s rating by one notch to CCC and the prices of the country’s 2025 dollar bond also accelerated after making a low in October 2022.
Though the liquidity crisis has been resolved, it’s high time for structural reforms. Else, the country will always run from pillar to post in search of loans to safeguard its economy and the fifth largest population from the curse of default!
Copyright Mettis Link News
Posted on: 2023-07-13T09:11:04+05:00
