EDITORIAL: External borrowing failed to meet the budgeted target by 51 percent as per data released by the Pakistan Bureau of Statistics (PBS): 4.285 billion dollars July-November 2023, against the total budgeted for the year at 24.2 billion dollars (6,874,426 million rupees with a projected exchange rate of 284 rupees to the dollar), envisaging 10 billion dollars during the first five months of the fiscal year.
This is in spite of the staff-level agreement (SLA) reached on the first review of the ongoing Stand-By Arrangement of the International Monetary Fund dated 15 November reflecting two elements: (i) Ishaq Dar-led finance ministry had unrealistically budgeted 6.1 billion dollars from issuance of Sukuk/Eurobonds (435 billion rupees) plus borrowing from commercial banks abroad (1,305 billion rupees) – a reliance that required a comfort level in the market with ongoing policies which was missing as international rating agencies did not raise Pakistan’s rating post-SLA; and (ii) slower pace of official pledged inflows as friendly countries express their concerns over failure to meet contractual obligations (particularly in the energy sector) with others waiting for the election results.
External borrowing during the first five months of the current year registered 16.2 percent lower than in the comparable period of last year (at 5.114 billion dollars), which again reflects the steady erosion of comfort in the ongoing policies that are being strictly monitored by the IMF.
Concurrently, the State Bank of Pakistan (SBP) uploaded two what are generally regarded as positive indicators on its website; however, their fallout on other key macroeconomic indicators makes the balance between positive and negative impact tilt towards the latter.
The November current account deficit, a perennial cyclical problem facing this country which accounts for Pakistan presently being on its 24th IMF programme in its 76-year history, was in surplus at 9 million dollars against a deficit of 157 million dollars in November 2022.
The July-November 2023 current account deficit was 1.16 billion dollars relative to 3.264 billion dollars in the comparable period of last fiscal year.
However, the decline in the current account deficit was not through a rise in exports – from 11,942 million dollars July-November 2022 to 12,172 million dollars in the same period of 2023 (a rise of 1.93 percent) but due to a massive decline in imports that was engineered though prohibitive exchange restrictions (from 26,064 million dollars July-November 2022 to 21,550 million dollars) during the first five months of the current fiscal year (a decline of 17.32 percent).
The decline in imports included a decline in the import of raw materials which, in turn, has impacted negatively on the large-scale manufacturing (LSM) sector, the primary export earner as well as the major source of income tax revenue, with the LSM index for October registering negative 4.08 percent, negative 2 percent month on month and negative 0.44 percent July-October this year compared to the same period of last year.
Thus, while the current account deficit was brought down yet it was at the expense of those employed in the LSM sector, lower exports and of course a lower growth rate.
Foreign direct investment rose by 8 percent, however, the total figure remains dismal – from 607 million dollars July-November 2022 to 656 million dollars in the comparable period of this year.
Pakistan has been unable to attract FDI in any appreciable amount and historical data reveals that FDI averaged a paltry 156.51 million dollars from 1997 to 2023 - reaching an all-time high of 1262.9 million dollars in June 2008 and a record low of negative 390.9 million dollars in October 2018.
In total terms these amounts account on average for only 0.2 percent of the total world FDI flows and less than one percent of Asian subtotal. The Special Investment Facilitation Council (SIFC) with a high-level civilian and military engagement has been established to provide the necessary support to attract FDI from Gulf Cooperation Council countries and while significant pledges have already been made, yet, so far, no binding contract has been signed.
It is, however, heartening to note that SIFC has decided to engage an internationally reputed project development, financial and legal consultancy firm for feasibilities/bankable projects, according to reports emanating from the SIFC.
This is necessary for evaluation and vetting of the fine-print of all contracts with the objective of ensuring that unlike those signed in the past, the country’s long-term interests are safeguarded.
Copyright Business Recorder, 2023