In my personal view a primary problem with regard to Pakistan’s economy is that there is a lack of complete and correct understanding of the facts on the ground. Late last week, the IMF (International Monetary Fund) issued a report about Pakistan’s economy which includes as ‘Table 3a’ projection about the current account of Pakistan.
The table has been prepared as per IMF requirements. It is not easy even for a person knowledgeable in financial matters to decipher this table in a manner that ordinary readers are able to identify the issues therein.
In the following table, I have described the cash flow position of Pakistan’s foreign currency account in a simple manner. All the figures have been taken from the information contained in the IMF report.
The answer, in summary is that the position is not good and people at large have to be educated to improve the situation instead of engaging in unnecessary and amateurish senseless political discussion. The cash position in simple terms is as under:
===========================================================================================Pakistan’s Cash Position $ million [2023-2027]===========================================================================================INTERNATIONAL MONETARY FUND REPORT=========================================================================================== 2022-23 2023-24 2024-25 2025-26 2026-27 Total===========================================================================================Imports goods 68,756 74,595 77,034 82,464 88,205Imports services 10,550 11,800 12,899 14,057 15,739Primary outlays 79,306 86,385 89,933 96,521 103,944Exports-goods 35,900 36,900 38,319 41,286 44,064Exports-Services 7,043 8,204 9,086 9,850 10,749Principal inflows 42,943 45,104 47,405 51,136 54,813-------------------------------------------------------------------------------------------deficit 36,363 41,281 42,528 45,485 49,131-------------------------------------------------------------------------------------------Interest payments (net ofincome from investment) 4,763 5,230 5,295 6,025 7,053-------------------------------------------------------------------------------------------Total cash requirement 41,126 46,511 47,823 51,510 56,184-------------------------------------------------------------------------------------------Other ReceiptsWorkers' Remittances 28,958 33,080 34,344 36,013 38,014Other private transfers 2,647 3,241 2,540 3,663 5,356Net Cash requirements 9,251 10,190 10,939 11,834 12,814Minor adjustments 29 231 341 342 231-------------------------------------------------------------------------------------------As per IMF-Net outflow ,9280 9,959 10,598 11,492 12,583 53,912-------------------------------------------------------------------------------------------Foreign investment 5,380 9,033 11,665 11,472 13,461 51,011Net Position-outflows 3,900 926 (1,067) 20 (878) 2901-------------------------------------------------------------------------------------------Foreign Loans, 135,931 144,,160 148,431 149,620 148,630-------------------------------------------------------------------------------------------Further loans-new borrowings/(repayments) 8,229 4271 1,189 (990) 12,699-------------------------------------------------------------------------------------------Reserves (desired) 16,226 17,436 19,143 21,311 22,831-------------------------------------------------------------------------------------------Increase in reserves 1.210 1,707 2,168 1520 6605Unexplained inflows 13,339 6,884 2,290 510 (878) 22,205===========================================================================================This table shows that from the year 2023 to 2027:
Pakistan will have a foreign currency outflow being excess of goods and services imports over exports after deducting home remittances of US $ 54 billion.
There will be no reduction in the foreign loan liability; instead there will be a net increase of UD $12.699 billion in loan liabilities of Pakistan. In other words, repayment of existing loans and interest thereon is paid by securing new loans with the result that every year the quantum of loan is increasing.
If the foreign reserves are to be maintained at above US $ 20 billion then there will be an additional requirement of US $ 6.6 billion.
This means that Pakistan requires around US $ 73 billion from any other source. As per the IMF estimates, there will be foreign investment during the period of US $ 51 billion, which leaves the unexplained requirement of US $ 22 billion.
In my personal view this is not sustainable situation and there appears to be no simple recipe for Pakistan. The IMF report is completely silent about the future sustainability in these circumstances. But it is not the IMF’s problem.
It is our problem. We have to sort it out; otherwise; as I said in December 2021, the state is not a going concern. I will be discussing this matter in the subsequent articles, however, the primary concern for me is the over aggressive projection about foreign investment in Pakistan of over US $ 50 billion over the next four years.
The amount of investment is not big in terms of funds available with foreign and local investors and the potential in Pakistan, however, the manner in which we are running our state, Pakistan is not the first option for foreign direct investment. When there is news about a ceasefire or no ceasefire with TTP (Tehreek-e-Taliban Pakistan) after every two weeks, the confidence level of foreign investors is eroded for years to come.
It is quite expected that in its desire to attract foreign investment, Pakistan may enter into ventures which are totally unsustainable in the long run. It is to be clearly noted that all foreign investors require repatriation of dividend and capital in US dollar.
So the investment is only viable if it can add value to the economy. In accounting terms, read with foreign exchange laws, a foreign investment is a liability not an asset unless it results in export promotion or import substitution in the real sense; otherwise, it is detrimental for the economy. However, in Pakistan, on account of cash crunch, our policies for foreign investment are made to balance the current account for the short term.
This is expected to be repeated again. Nevertheless, I feel that ‘Q Block’ in Islamabad is not capable of creating any system which will be able to attract this investment in a proper manner. A new system of economic governance is required to be designed. This requires a very proactive role by the State Bank of Pakistan.
The most worrying aspect for me is the fact that there is an unexplained gap of over US $ 22 billion being the requirement to balance the books even without paying a single penny out of existing liability.
‘Who will pay us this money and on what consideration and condition?’ is a question which is not being answered by anyone. Those who say that the IMF is good or bad have to understand that the IMF is not a lender in our case. It is a deemed guarantor for the existing loan liabilities for which we have no money to repay and future requirement for the gap.
In summary, the cash position as reflected by the IMF shows a dismal picture of Pakistan’s economy. As stated above, this requires serious economic restructuring if it desires to be a going concern. Countries do not disappear from the political map; however, people suffer when economies are destroyed by not addressing the facts on ground.
Copyright Business Recorder, 2022