THE government expects to achieve a trimmed-down foreign exchange reserve target of $15bn by December 31 with the improvement in the country’s image, as seen by it.

With current reserves at around $13.2bn, an additional $2.5bn would be required over the next 50 days, following debt repayment of about $350m.

Earlier, the government was targeting the $15bn-threshold by the end of September and cross the $16bn-mark by December 31.

The government claims that owing to the twin sit-ins of the PAT and the PTI in Islamabad, about $2.4bn worth of transactions scheduled between August and September had fallen apart. Hence, it is seeking a quantitative performance waiver from the IMF for not raising foreign exchange reserves by $3bn.

The government can reinforce the confidence of investors by citing multiple recent developments, including the prime minister’s visit to China for $33bn worth of investment and credits, a donors’ conference scheduled in Islamabad this week for rehabilitating people affected by military operations and floods in Punjab, and another investors’ conference in Islamabad on development in Balochistan in the last week of this month.

Anticipating tough questions from the IMF, the government has started claiming credit for reducing the circular debt from about Rs295bn in August to Rs238bn by early September

The Balochistan development conference — which would offer infrastructure, water, education, energy and healthcare projects to international donors and investors — was earlier planned for the last week of August, but was postponed due to the political unrest.

Along with the OGDCL divestment, the government expects to raise about $4bn through the privatisation programme, including the over 40pc strategic sale through the capital market of Pakistan Steel Mill by the end of the current fiscal in June. Surplus land of the mill would be separately sold out.

This will be followed by divestment of shares in PIA and power companies. The transaction structure for these units would be firmed up in the coming few months, mostly depending on feedback from financial advisors.

The government is expecting to secure $1.1bn in the first week of December from the IMF. This will be in addition to the launch of an international Sukuk bond worth $500m-1bn in the last week of the current month. Major infrastructure projects like airports and motorways are being examined to be kept as collateral for the Sukuk.

The launch of a remittance-based bond of $1bn or so would be planned before the close of the current fiscal year. The recovery of proceeds of PTCL’s sale to Etisalat has already been delayed.

Indications are that beyond the $1.1bn disbursement expected in December, the IMF is getting harder over the re-emergence of circular debt. Anticipating tough times, the government has started claiming credit for reducing it from about Rs295bn in August to Rs238bn by early September, but it did so without making effective recoveries from provincial governments or private sector defaulters.

The partial offset in circular debt was, however, at the cost of public face, as the government has come under severe criticism for over-billing consumers in all the four provinces, excluding the city of Karachi.

As if that was not enough, the government imposed a fresh additional surcharge of 30 paisas per unit on all consumers, following by another Rs1.50 per unit equalisation surcharge, to thwart the implementation of the reduction in tariff by the National Electric Power Regulatory Authority.

While this equalisation surcharge would remain in place until December 31, 2015, the move has practically wiped out the subsidy on electricity tariff, given the fact that Nepra’s determined tariff and the applicable tariff have become equal for the first time in decades.

This means that the government would have enough cushion to absorb the Rs200bn budget allocation for subsidy payments against payables to independent power producers and fuel suppliers.

However, to remain in the good books of the IMF, the government will have to complete the organisational structure of Nepra, which has been working without a chairman since June 2013.

It will also need to speed up the legislation process for granting independence to the State Bank of Pakistan to the fund’s satisfaction. This would include the publication of summaries of monetary policy proceedings of the central bank’s board. An effective mechanism for consolidation and management of public debt will also have to be put in place.

In the long-term, the government plans to continue launching Eurobonds worth $500m-$1bn every year until fiscal year 2017, but this will depend on continued stability in macroeconomic conditions.

The IMF had advised the government to clearly spell out its objectives for tapping into international debt markets — like for financing projects, budgetary support or influencing the local debt financing curve and as part of its overall debt management strategy — to ensure rationale of debt-carrying costs.

Published in Dawn, Economic & Business, November 10th, 2014