There have been a number of queries about my estimate of external financing requirements of Pakistan at $32 billion. This figure has also been quoted with reference to me in an Editorial of the Business Recorder. This estimate was given by me was in response to a question asked at a seminar held recently at Lahore organized by SDPI/FES.
The clarification is as follows:
(i) External financing requirement is defined as the current account deficit plus the repayment of external debt during a particular period. This is also the definition by the IMF.
(ii) The $32 billion is for the next 16 months, as asked for by the questioner. In effect, it will be $2 billion per month. For example, the external financing requirement during the month of November was $ 1.83 billion.
(iii) It includes a current account deficit of $21.3 billion over the next sixteen months and repayment of debt of $10.7 billion during this period. It effectively corresponds to an annual financing requirement of $24 billion.
(iv) The external financing requirement should not be confused with the financing gap. The latter is the amount of external financing requirement which remains after receipt of external loans, FDI, FPI, and swaps. In effect, the financing gap corresponds to the extent to which pressure is put on the foreign exchange reserves.