The authorities quash rumours of an economic emergency but emphasise the need for government austerity and conservation of energy.
By Muhammad Ali
ISLAMABAD: As authorities emphasise austerity and energy conservation to lower the country’s import bill, the Kingdom of Saudi Arabia has agreed to rush up to USD 3 billion in financial assistance to help Pakistan weather the liquidity crunch through the New Year, Independent Pakistan can report.
The information breaks as authorities in Pakistan are astir to quash rumours of an economic emergency the crunch, created by the delay of a USD 1.18 tranche from the International Monetary Fund (IMF), hinged on a review that seems to have stalled.
On Wednesday, the Finance Division put out a public statement rubbishing rumours swirling the social media that the authorities plan to impose an economic emergency.
“Finance Division not only strongly rebuts the assertions made in the said message and but also categorically denies it and [asserts] that there is no planning to impose economic emergency”, the statement said.
Pakistan and the Fund seem deadlocked over the ninth review of the Extended Fund Facility (EFF) program.
Finance Minister Ishaq Dar has repeatedly said his team is compliant on all the agreed performance criteria, but the Fund staff say some of the targets for the quarter Jul-Sep 2022 have not been met, but they have not publicly said which.
Predicated on the success of the 9th review is a USD 1.18 billion tranche of funding from the IMF, with the time window for a board approval before the Christmas and holiday Season all but closed.
The Saudi funding should keep Pakistan’s economy going through January 2023, allowing the government more time to push through the review. Pakistan is in the final year of is multi-year USD 6.5 billion EFF program, due to conclude end June 2023, and Finance Minister Dar has repeatedly asserted he intends to complete the program.
The EFF was approved by the Fund’s executive board on July 3, 2019 for about USD 6 billion at the time of approval. On August 29, 2022, the board approved an extension of the EFF until end-June 2023, enhancing total access to about USD 6.5 billion.
Top officials at the Ministry of Finance are keeping the Saudi financial assistance under the wraps for now for diplomatic reasons. One official, however, dropped a hint that the KSA was riding to the rescue of the economy.
“We are at advanced stage for finalising the deal,” said the official and added that the authorities could not share full details because it might jeopardise the deal.
Pakistan requires dollar injections to overcome liquidity crunch which will also give confidence to jittery markets. Although Islamabad repaid USD 1 billion last week on a Sukuk bond maturity two days before it was due, the country’s foreign exchange cover has worn thin. The reserves held by SBP slid by USD 327 million last week, dropping to USD 7.4 billion.
Minister for Finance Ishaq Dar is trying to avoid hard conditions of the IMF as much as possible but making a commitment that Pakistan would complete the IMF program.
Not the least of Dar’s problem is that he has on his plate the diametrically opposed tasks of stabilising the economy and wooing the electorate, at the same time and on a tight schedule.
And it seems he is determined to deliver on both counts by trying to lower the economic hardship by a bit while negotiating the concluiding part of the IMF program.
Then he has an economy ruined by years of mismanagement, a global pandemic, an apocalyptic natural disaster one after the other, at a time when a recession is looming over the global economy.
In fact, Pakistan is one of over 50 developing nations facing difficulties in the face of the global economic slowdown amid higher inflationary pressures.
The Finance Division said the message is aimed at creating uncertainty about the economic situation in the country and “spread by those who do not want to see Pakistan prosper”.
It said the creation and spread of such false messages is against national interest in these times of economic hardship, and accentuated “inherent strength and diversity” of Pakistan’s economy.
The statement said: “The present difficult economic situation is mainly the result of exogenous factors like commodity super-cycle, Russia-Ukraine war, global recession, trade headwinds, Fed’s increase in policy rates and [the] devastation wreaked by unprecedented floods.
“The government has been making utmost efforts to minimize the impact of such external factors, even when faced with the economic consequences of unprecedented floods and having to meet IMF conditionalities. The Government remains committed to completing the IMF program while meeting all external debt repayments on time.
“In this challenging economic situation, the government has put in place a number of austerity measures with the approval of the federal cabinet. Such measures are in public knowledge and are aimed at eliminating non-essential expenditures.
“Similarly, the government has been deliberating energy conservation mainly aimed at reducing the import bill. Such deliberations will continue in the Cabinet and all decisions will be taken in consultation with all stakeholders and in the best national interest.
“With the efforts of the current government, the IMF program has come back on track and negotiations leading to 9th Review are now at an advanced stage. Government’s recent efforts have resulted, amongst others, in lower current account deficits in recent months and achievement of FBR revenue targets. Easing up of pressure on external account is also foreseen in the near future. While there remains the need to make structural adjustments in the mid-term, the economic situation of the country is now moving towards stability.
“Finance Division urges the people of Pakistan to contribute towards economic betterment and stability and not to pay heed to malicious rumour-mongering which is against the national interest of Pakistan”.
Copyright © 2021 Independent Pakistan | All rights reserved
