The IMF (International Monetary Fund) issued ‘Request For Stand-By Arrangement’ in July 2023. The IMF has again produced a foreign currency cash flow projection for the following five years. This is even a better presentation on the same subject compared to the Report issued in 2022 on which the author wrote an article in this paper.

In both the reports, cash flow projection is given in Table 3a on page 35. This table is designed in a particular manner suited for financial experts. As in 2022 the author has reformatted the presentation for the sake of simplicity in the following table.

================================================================================================================================            Particulars                                       2022-23     2023-24    2024-25    2025-2026   2026-2027    2027-28================================================================================================================================            Goods1           Exports                                            28.062      30.843     33.340      35.857      39.005      40.9212           Imports                                            53.951      64.700     68.921      73.115      77.632      82.7893 (1-2)     Net outflow on goods                              (25.889)    (33.857)   (35.581)    (37.258)    (39.005)   (41.869)            Services and interest4           Net outflow on services                            (.445)     (1.566)    (2.287)     (2.789)     (3.366)     (4.030)5           Net interest payments                             (5.596)     (5.445)    (5.273)     (6.109)     (6.682)     (7.198)6 (3+4+5)   Net outflow on goods services and interest        (31.930)    (40.868)   (43.141)    (46.156)    (49.053)   (53.097)            Remittances and other current inflows7           Remittances and other current account transfers    27.910      34.444     36.680      39.016      41.768      45.1518 (6-7)     Net shortfall on current account                  (4.020)     (6.424)    (6.461)     (7.140)     (7.285)     (7.946)9           Foreign Direct Investment including portfolio            investment excluding direct investment abroad     (1.015)       .493      5.838       6.873       8.062        8.901            Government Loans10          Repayment                                         (11.719)    (6.928)    (10.023)    (13.081)    (10.771)   (13.055)11          New Loan                                           9.700       14.686     15.169      13.988      11.045      12.27912 (10-11)  Net on Govt loans                                 (2.019)      7.758      5.146        .907        .274       (.776)13          IMF                                                            1.20014 (12+13   Total movement in government Loans                (2.109)      8.961      5.146        .907        .274       (.776)15          Net other liabilities inflows/Outflow              . 575        .236       .765       1.090       1.364         .955            Total Capital account                              (2459)      9.690      11.749      8.870       9.700       10,63216          Net inflow/(outflow) for the year                 (5.993)      3.567      5.444       1.828       2.494        2.71618          Use for reserves augmentation                      5.796       4.926      3.905       1.253       1.122         .48419          Net use/(excess use)                               . 197            (1.359)                                            1.539        .575      1.372       2.232            Total                                              5.993       3.567      5.444       1.828       2.494        2.71619          Reserves at beginning                              9.821       4.056      8.982       12.888      14.141      15.263            Increase/(Decrease) in reserves                    (5796)      4.926      3.905       1.253       1.122         .48420          Reserves at end                                    4.056       8.982      12.888      14.141      15.263      15.74720          Loans at beginning                                123.574     130.581    139.116     143.719     147.582     150.476            Increase in loans                                              7.007      8.535       4.603       8.466        2.894================================================================================================================================

Each aspect has been discussed in the following paragraphs; however, after reading this table the author is of the view that our position is projected to be deteriorating in the next five years. Furthermore, it appears that the IMF has tried to bring in positivity to the maximum extent but relevant facts do not corroborate these assertions.

Current Account

Current account estimates by the IMF demand serious consideration when compared to what had been projected in 2022. Net deficit on that account has been projected to be less by USD 25 billion. In the author’s view, a positive assertion has been made on the current account, which is fundamentally different from projection in 2022.

In the earlier report, the net current account deficit was on average of USD 11.5 billion. This has been estimated at around USD 6.5 billion in 2023 report. This means that the current account deficit will reduce from the earlier estimate for five years by USD 25 billion.

Even if it is considered that the amount estimated is correct this clearly depicts that the economy is projected to be contracting. It is for this reason that there is an apparent reduction in the value of imports of goods. It is the author’s opinion that estimates for a reduction of USD 25 billion in the current account are not justified and actual figures will be close to what had been estimated in 2022.

For example: imports of USD 88 billion for 2026-27 have been revised downward to USD 77 billion: a decrease of USD 10 billion. The exports for the same year, i.e., 2026-27 estimated at USD 44 billion have been revised to USD 39 billion: a decrease of USD 5 billion. There is an average decrease in current account deficit of USD 5 billion, which accumulates to USD 25 billion over five years. In the author’s view, this is an unrealistic estimate and an over-simplistic proposition.

Furthermore, this proposition is based on an estimated 10 to 15% increase in home remittances. This is by and large in line with the estimates in 2022; however, keeping in view growing alienation among expatriate Pakistanis, the estimate of USD 40+ billion for near future is only an overestimate.

Foreign Direct Investment (FDI)

The most damaging aspect is the estimated foreign direct investment. Under the revised cash flow, the estimated FDI and portfolio investment has been estimated at around USD 25 billion over the period of next five years.

In the earlier estimate of 2022, this amount was on an average over USD 10 billion per annum, meaning thereby an investment of over USD 50 billion in five years. In the author’s article on 2022 figures it was said that there is no possibility of USD 50 billion FDI inflows in the following five years. This view appears to have been validated by figures and facts.

It is considered that for a country like Pakistan an FDI of USD 25 billion is a very small sum. However, based on the situation on the ground and the currency rate, even achieving USD 25 billion in five years will not be possible unless we change the entire political, social, security and economic paradigms. In this context the author is also concerned about IMF’s reasoning for this major change over a period of twelve months.

This change does not emit a good signal because in their own estimates, they have halved the FDI without giving any reason for it. It was clear at that time that the Fund’s projections were not correct and even now it is felt that the revised projections for current accounts are again an overestimate unless there is a fundamental change in the economic structure of the country.

Loans

The most tragic aspect of the current circumstances is dependence on external loans and the consequent ‘Requirement for External Finances”. As per an IMF report, this year, much like in 2022 projections, there is no effective repayment of loans. There is an increase in net loans due in foreign currency from USD 123 billion to USD 150 billion over the period.

The outstanding loans during the period are almost the same, with some differences in the two tables. However, the bottom line is that there is no reduction in loan liability and we will be adding around USD 23 billion to our liabilities over the next five years. This simply means whatever we argue about probable sovereign default, the need for ‘re-profiling’the debt is starkly stated in black and white in a foreign currency schedule.

IMF’s Table 3a also states the funds that will be required in the respective years for settling the debts due during the following five years. This amount, which was estimated at around USD 33 billion on average in the last report, has been reduced to around an average sum of USD 27 billion per annum. There is no apparent reason for this change other than that it is effectively linked with reduction in current account.

The 2023 Report reveals that the IMF has tried to present a better picture for Pakistan, which is good for us. But we will come across many gaps and policy differences if we decide to analyse the issue in detail.

It is apparent that the IMF is trying to demonstrate that Pakistan ‘may be’ able to sustain in a manner that it has been adopting for the past many years. This is a good omen. This presumption is presumably being made to satisfy the ‘creditors’.

The whole story revolves around the saving of USD 25 billion projected import of goods and estimated FDI of USD 25 billion in the following five years. It has been projected that exports will attain a growth of less than 10% on average, which is shameful when compared with India and Bangladesh.

These discussions reveal that the country’s default risk in the forthcoming five years will only increase. This report should be read as a preamble to the next IMF programme; and it clearly shows that in a subsequent programme, certain policy decisions on this matter would have to be taken.

This report is more like a pitch made by a borrower in distress for seeking financing from creditors. To that extent it is good. However, the borrower could face an extremely adverse situation if that is considered to be a real position.

Copyright Business Recorder, 2023