MoF's response

A news report published in daily "Business Recorder" on 26th October, "Government likely to borrow more" quotes Dr Hafeez Pasha making a statement in a talk show on Aaj TV that government would have to borrow more for repayment of $6.64 billion Extended Fund Facility (EFF), debt servicing on loans acquired from bilateral/multilaterals and payment of maturing Eurobond/Sukuk after 2016-17.
It is important to note that Ministry of Finance in co-ordination with domestic as well as external stakeholders has developed and published Pakistan's first Medium Term Debt Management Strategy 2013-18 (MTDS) to identify the financing needs and sources of financing and minimising the cost of debt while maintaining the acceptable level of risks. It was aimed at debt sustainability and enhancing the debt servicing capacity of the country. It is a public document and provides a clear strategy and debt position in 5 years time including cost/risk position. Debt Office of Finance Division is currently updating the MTDS for 2015-20.
Dr Hafiz Pasha has also mentioned that the bulk of the increase in debt has come from high-cost, shorter-maturity domestic debt, which is totally incorrect as the focus of Pakistan's debt strategy is lengthening in maturity and carrying less refinancing risk along with sufficient provision of external inflows in the medium term. In line with this strategy, Pakistan is on track to lengthen the maturity profile of domestic debt while keeping in view cost-risk trade-offs as the share of medium to long term Pakistan Investment Bonds (PIBs) in total domestic debt increased to 34 percent by end June, 2015 as compared to only 14 percent in 2013. Accordingly, percentage of domestic debt maturing in one year reduced to 47 percent by end 2014-15 compared with 64 percent at the end of 2012-13.
Dr Pasha has also expressed concern that exports are not increasing may lead to borrow more. It should be noted that the major cause of recent decline in exports is due to a slackness in global demand, particularly among country's trade partners. In addition the international commodity prices have stayed low since June 2014. This has implications for textiles exports, which is the major export item of Pakistan. But a more basic flaw in Dr Pasha's reasoning is that he has looked at exports decline and not looked at the behaviour of imports or the overall current account. Both these accounts have shown a countervailing effect on declining exports, with current account strengthening remarkably during the last 15 months. With healthy capital inflows we are building up our reserves, which are at historic high level of more than $20 billion at End-September 2015.
He suggested that one of the ways is to devalue Pakistani rupee because he believes that it is overvalued. It is suggested to him that this aspect be looked into general equilibrium perspective rather in partial equilibrium. It is important to highlight that State Bank of Pakistan (SBP) has been following a flexible exchange rate regime since early 2000 in which the value of Pak rupee vis-à-vis other currencies follows a two-way movement and is largely determined in the foreign exchange market through the market forces of supply and demand.
Dr Hafeez Pasha's assertions on the quality of reserves have already been rebutted in response to his previous article on the subject. Here we would only say that the average cost of loans contracting by the present government is only 3.3% and there is hardly any short-term debt it has acquired. Most of the loans are of long-term maturity, 10-year or more. The exports are facing global recession and would not be corrected by an exchange rate adjustment. Pakistan's exports performance has been far superior compared to other regional countries, which have suffered more due to global slowdown in exports demand. The country is saving more in reduced import bill for oil imports compared to a small reduction in value of exports due to reduced rice and cotton prices. More importantly, as we already noted, for the bottom line of balance of payments, one looks at the current account deficit and not exports alone. Here the country has done much better during the last two years of the present government.