By Muzzammil Aslam
The high-powered Chinese trip led by Imran khan was concluded on November 5, 2018. Media, Opposition, and Markets have been trying to evaluate the trip and the initial impression of the expedition, extracted from the Joint Statement issued by two Governments, came off as a disappointment.
The noise captured in local press, upper & lower house and the markets have also behaved erratically. The story does not end here, a few corners even went back to Saudi Arabia’s $6 billion support package and raised doubts on its fulfilment.
These resentments have forced the government to clarify the outcomes of the trip, therefore in the last 24 hours, key Ministers including Foreign, Finance, Commerce & Planning Commission have had to call press conferences, and attend Parliament and Media sessions to explain the situation.
Among the statements, the most glorified statement was issued by Finance Minister Asad Umer, which said that “Pakistan’s financing gap of $12 billion for 2018 has been arranged, following a $6 billion support package from Saudi and the remaining through China”. However, within a few hours he was seen to be rectifying his statement when he said that, “China and others will contribute the remaining $6 billion”
The question is, in what shape will this remaining amount materialize? Will this add immediately to the reserves or with a time lag?
A few points of conclusion drawn from the outcomes of the trip:
1- On the basis of information provided by commerce Minister & Finance Minister, the key to Chinese help is that Pakistan’s exports to China will double from $2 billion to $4 billion in the current fiscal year. So, the proceeds will only come through when exports are shipped to China. This means that even if we export tomorrow it will take a minimum of two months to realize the earnings. Realistically speaking, we would be lucky to achieve this target by June 30th 2019. .
2- Currency Swap limits to increase from CNY10 billion to CNY20 billion. Again this stop gap arrangement relies on the speed of exports to China. However, this may at-least provide the breather of additional $1.5 billion.
3- Refinery will be set up and CPEC’s focus will be on agriculture, poverty reduction and trade. All these may fetch money but not immediately. Hence no material impact on reserves in short-term
4- There have been no details on concessional loan, CPEC projects financing or term deposit. In my view, this is highly disappointing and may force us to return to IMF dictation to procure program.
As highlighted above, the market has already discounted the below par results of Chinese trip. However, it has managed to recover some lost ground on the back of Ministers’ feedback.
The sustainability of the market depends on IMF program negotiations. So far Finance Minister has not indicated the exact amount to be requested from IMF. Meanwhile, the Fund’s delegation is already on a visit for the next two weeks and inevitably, the macros and market behavior will be dictated by outcomes of IMF program. Therefore, we expect the market to remain volatile in the next couple of weeks.
Copyright Mettis Link News
24153
