Pakistan’s dollar reserves have been extraordinarily strained this fiscal. At work is a ballooning current account deficit (CAD), which was roughly $11 billion in 8MFY18. External borrowings – in excess of $6 billion in Jul-Feb period – couldn’t foot that bill alone, causing SBP’s net forex reserves to fall some $4 billion in those eight months. At the pace CAD is widening and with some heavy loan repayments coming up in April and May, the government has to source at least $6 billion in the remaining months this fiscal.
Those numbers signal continued reliance on foreign commercial borrowings in the two months that the PML-N has left. By FY18 end, Pakistan would have borrowed, on average, $1 billion every month to finance its foreign obligations while still losing central-bank reserves to the tune of $500 million a month. This forex depletion has necessitated a monetary tightening in the middle of an expansionary cycle.
While it’s resignedly understood that growth in non-debt-creating dollar inflows – exports, remittances and FDI – were hard to come by soon, the PML-N government should have also examined a few non-conventional avenues to beef up the forex stockpile in time. Granted, Nawaz Sharif’s ouster in July 2017 reduced the party’s political capital. But the external front had started ringing alarm bells earlier in 2016.
Privatizing Disco’s, Genco’s, PIA and PSM, was arguably a long shot in the government’s final years. PML-N’s privatization activities had been stalled since late 2015, earlier yielding Rs170 billion through capital market transactions of UBL, PPL, ABL and HBL. But the government could have netted, with relative ease, at least $500 million through two more such transactions that were on the cards: selling 5 percent of its shareholding in OGDCL and divesting its entire 18.39 percent shareholding in Mari Petroleum.
Facing the crunch, the government could have also reached out to the UAE high-ups and sought a final settlement on the pending payment of $800 million by Etisalat on account of PTCL strategic-stake-sale back in 2006. An Etisalat delegation was in Islamabad earlier this year, but the dispute still remains stuck over the fate of a few properties to be transferred in the name of PTCL.
An amnesty scheme, which is reportedly in the works these days, could have come a bit earlier. The government is hoping to on-shore $4 to $5 billion (ambitious?) out of a reported $130 billion in assets owned by Pakistanis overseas. But there is uncertainty as to when the proposal – which is already locked up in the apex court and requires amendments to existing legislations – will see the light of the day and how much forex it can realistically cough up.
Finance ministry officials could have also acted on the idea raising low-cost “patriotic capital” through diaspora bonds, something which India has successfully lured non-resident Indians into several times. But the talk has so far not turned into action. Consider: tapping even 5 percent of the estimated $52 billion annual income of overseas Pakistanis for investment back home could have offered significant reserves.
It may be too little, too late; but Overseas Pakistanis Savings Certificates – a somewhat similar initiative by Central Directorate of National Savings (CDNS) – is aimed for launch this May, CDNS Director General told BR Research in a recent interview (published April 2, 2018). The DG put the addressable “savings” of overseas Pakistanis – which is separate from official remittance transfers – between $10 and 15 billion. He expected to raise funds between $500 million and $1 billion in the first year of the scheme’s launch.
Admitted, the above-cited measures are stopgap in nature, fall short of financing the entire dollar deficit, and are no substitute for structural reforms needed to boost exports and FDI. However, given the anticipated dollar crunch, all possible avenues (beyond the expedient and expensive recourse to foreign commercial borrowing) should have been explored well in time. But that was not to be. A harsh summer lies in wait now.
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