WASHINGTON: The World Bank said on Monday that Pakistan’s external financing needs in 2017-18 were $17 billion and not $31bn, which was wrongly deduced from one of its previous reports.

The World Bank, however, warned that the country was “facing headwinds in the external sector and a rising fiscal deficit that could put macroeconomic management at risk.”

The situation “has resulted in increased external financing needs of 5-6 per cent of GDP in FY18, or around $17bn, to cover rising current account deficit and debt payments,” the bank added.

On Sunday, the Ministry of Finance said that Pakistan’s external repayment obligations for the current fiscal year stand at $18bn for the current year and asked the World Bank to rectify its ‘error’ that put external obligations at $31bn.

In a statement, the finance ministry pointed out that the World Bank had erroneously included $13bn of portfolio investment in its estimates that were not part of the repayment obligations.

The bank agreed with the delegation that “foreign portfolio investments are not part of the external financing needs of Pakistan,” said a World Bank statement issued in Washington on Monday.

The bank assured Pakistan that it would continue to support its efforts to implement broad economic reforms and address current risks towards achieving its development aspirations.

The statement was issued after discussions with the Pakistan delegation that covered a range of topics including the macro-economic outlook, human capital development, renewable energy and private sector development as well as infrastructure financing.

The Pakistani delegation included Secretary Finance Division Shahid Mahmood, Governor the State Bank of Pakistan Tariq Bajwa and Secretary Economic Affairs Division Arif Ahmed Khan. The World Bank team was led by its Vice President (South Asia Region) Annette Dixon.

Rising fiscal deficit could put the country’s economic management at risk

The bank acknowledged that that Pakistan has done well in stabilising its economy over the past four years, and in achieving 10-year high growth of 5.3pc in financial year 2017. The delegation informed the bank management of the recent performance in revenue mobilisation, exports and remittances.

An earlier statement by the Pakistan Embassy said that the World Bank agrees with Pakistan’s position that some recent estimates of the country’s debt burden were grossly exaggerated.

“The World Bank acknowledged that the figures quoted in certain sections of media were grossly exaggerated and an undue misperception had been created,” the embassy added.

In its twice-a-year South Asia Economic Focus report, the World Bank estimated last week that Pakistan’s gross external financing needs – the money required to meet foreign obligations, was equal to 9pc of gross domestic product (GDP). At the current estimated size of Pakistan’s economy, this translates to $31bn.

The World Bank report led to a public debate between Director General Inter-Services Public Relations Major General Asif Ghafoor and Interior Minister Ahsan Iqbal over the country’s economy, which also roped in some opposition politicians.

The embassy said that the Pakistani delegation also urged the World Bank to play its role under the Indus Water Treaty to resolve outstanding dispute between India and Pakistan on the construction of Kishanganga and Ratle hydropower projects.

The 1960 Indus Water Treaty empowers the bank to conduct arbitration in water disputes between India and Pakistan but it has no power to persuade them to accept its advice.

Last month, the World Bank hosted a meeting between India and Pakistan on the Kishanganga and Ratle hydropower projects dispute, which concluded without an agreement. The bank, however, said that both countries had agreed to resolve this issue in an amicable manner, an assurance not supported by recent media reports. The reports suggest that India does not believe the two projects violate the treaty and has decided to continue the construction.

At the World Bank annual conference, the Pakistani delegation said that the current economic situation in the country had created new opportunities for investment and international investors should take advantage of this situation.

They said that the growth rate achieved in the last financial year was the highest in a decade and that the ongoing China-Pakistan Economic Corridor projects, improved security situation and growth in private sector credit offtake, especially fixed investments, will help Pakistan in maintaining this growth trajectory in the coming years.

The Pakistani delegation argued that the current account deficit was partly driven by higher machinery imports, which in coming years should add to the growth momentum of the economy through increased economic activity in the real sector. They assured the bank that the government was closely monitoring the external account situation and was taking steps to address it.

In their meeting with a team of the International Finance Corporation (IFC), the Pakistani delegation urged the institution to speed up the process for setting up the proposed Pakistan Infrastructure Bank (PIB). The IFC team told the Pakistani delegation that they are working on the process to finalise the business plan for PIB.

In a meeting with the officials of the Multilateral Investment Guarantee Agency (MIGA), a member of the World Bank Group, the delegation welcomed a planned visit of its representatives to Pakistan to carry out due diligence in auto mobile sector and urged them to expand their operations in the country.

Published in Dawn, October 17th, 2017

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