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ISLAMABAD: Pakistan plans launching another international bond in about 45 days to manage external vulnerabilities and said it would do everything possible not to go for another IMF programme in any circumstances.
This came on the conclusion of 10-day comprehensive talks with the International Monetary Fund that identified a couple of near-term challenges mostly arising out of pre-election political instability but otherwise noted strong economic growth prospects and healthy fundamentals.
The IMF welcomed recent depreciation of the rupee, noted favourable economic growth momentum supported by improved energy and security situation and infrastructure investments but called for strengthening resilience, greater exchange rate flexibility, fiscal discipline and tight monetary policy stance.
Remarks come at the end of post-programme monitoring with the fund
The “government is fully focused not to let things reach a stage where you need IMF programme. We will do every thing possible to stop that,” Secretary Finance Shahid Mahmood told journalists as the IMF mission led by Harald Finger confirmed separately that the authorities did not seek or need another bailout from the IMF.
The government raised $2.5 billion through two international bonds — sukuk and eurobond — a few days ago. Mr Mahmood said the bond launching team had the mandate from the federal cabinet to raise up to $3bn from the international market but did not touch that level because it could have increased the pricing.
“We have that facility available. We can go to the capital market again in a month and a half”, he said, adding that the IMF mission would submit its report on the assessment of Pakistan’s economy to the executive board by February next year, but why should the government wait for their advice.
The finance secretary said the government missed targets on fiscal and external fronts last year but had made every effort to retrieve the situation, as revenues showed 19.5pc growth in five months against 8pc of last year while all areas of expenditures were being kept under tight control and all pillars of the government were being kept abreast of the situation to ensure that fiscals do not land at the last year level when it ended up 5.8pc of GDP fiscal deficit instead of targeted 3.8pc.
He declined to commit exact size or type of the bond saying instruments could be different and financing needs would vary depending on discussions with other multilateral lenders like the World Bank and the Asian Development Bank but said the new bond in the international market would be of 5, 7, 10 or 30 year tenure depending on the market situation.
In extreme circumstances, the secretary finance said the government could also arrange commercial financing but that would always be the lost resort.
Responding to a question, he said the external needs were not out of control but would depend on export growth and measures taken to control imports.
He said the exports in five months of current year have grown by 11.8pc after declining for four years continuously and imports were showing signs of contraction after imposition of regulatory duties while recent currency devaluation would also affect import growth.
Remittances on the other hand also showed 1.3pc growth in first five months after last year’s fall. He said the government had missed targets for fiscal deficit and current account deficits last year by a margin but was taking all possible measure to ensure that situation was not repeated again. He said the external needs were not out of control.
An IMF mission visited Pakistan from Dec 5-14 for the first Post-Programme Monitoring (PPM) since the end of Extended Fund Facility (EFF) in September 2016 and held detailed technical discussions with senior officials in the Ministry of Finance and State Bank of Pakistan, ministries of energy, planning, commerce, privatisation, railways, and the Federal Board of Revenue, Board of Investment and regulatory bodies like Nepra, Ogra and SECP.
Going forward, the secretary said the government would continue with fiscal consolidation without taking steps to affect economic growth that was targeted at 6pc may stay little lower. The IMF delegation put the growth forecast at 5.6pc of GDP.
The secretary finance agreed that 4.1pc limit set for fiscal deficit may slip as many factors had changed since the budget was announced in June 2017. He said it would not be advisable to restrict economic growth by cutting down on development because this could impact job creation but revenue machinery had to do a lot more during the current year for which a plan was on the prime minister’s table.
Harald Finger told journalists that continued exchange rate flexibility will be important to facilitate external adjustment to support exports and economic growth. “Strengthening the economy’s resilience will be important to maintain Pakistan’s favourable growth momentum and ensure sustainable private investment and job creation in the medium term”, he said.
But despite accelerating growth and subdued inflation, the mission noted that Pakistan faced important near-term economic challenges like surging imports that cut down on reserves despite higher external financing. The increase in the fiscal deficit last year has added to these trends.
Also, it expressed concern over accumulating power sector arrears and wanted the government to act decisively to address for prevent a further build up of vulnerabilities and preserve Pakistan’s hard-won macroeconomic stability.
The mission noted that a strong reform effort was needed to maintain external stability, ensure debt sustainability, and support higher and more inclusive growth in the medium term. This included pursuing medium-term fiscal consolidation driven by accelerated efforts to broaden the tax base, strengthening the monetary policy framework and autonomy of the SBP besides careful phasing in of new external liabilities to contain external stability risks, eliminating the losses of public sector enterprises, improving the business climate, and continued strengthening of the financial sector.
Published in Dawn, December 15th, 2017
