Editorial
Federal Finance Minister Muhammad Aurangzeb recently spoke to the press after delivering a keynote address at a seminar titled “Leaders in Islamabad Business Summit 2024 collaborating for Growth”. Aurangzeb noted that foreign exchange reserves would rise to between 9 and 10 billion dollars by taking into account the 8054.7 million dollars held by the State Bank of Pakistan on 12 April 2024 and the disbursement of the final tranche of the Stand-By Arrangement of the International Monetary Fund (IMF) of 1.1 billion dollars. While this amount is a significant improvement from the 3678.4 million dollars available on 20 January 2023, two observations are critical.
The bulk of our foreign exchange reserves, a significant 7 billion dollars, have been extended by friendly countries for a year. This support, with Saudi Arabia contributing 3 billion dollars, the United Arab Emirates rolling over 2 billion dollars, and China extending 2 billion dollars, has been crucial. These extensions were instrumental in convincing the IMF mission to reengage with Pakistan, leading to an agreement on the then-pending ninth review of the Extended Fund Facility program. The interest cost to our economy for these deposits was 26.6 billion rupees last fiscal year.
Secondly, the requirement for foreign exchange from March 2024 to November 2024, as per the State Bank of Pakistan (SBP), is 19.71 billion dollars. This amount is not likely to be met with the two desired sources of foreign exchange inflows, notably, from a possible trade surplus and remittance inflows.
The July-March 2024 trade deficit has shown a promising decline to 17.030 billion dollars, a significant improvement from 22.68 billion dollars in the comparable period of the year before. However, it is important to note that the March 2024 trade deficit widened by 56.30 percent to 2.171 billion dollars against 1.389 billion dollars during the same month in 2023. Remittances also rose July-March 2024 compared to the year before – from 20.844 billion dollars to 21.036 billion dollars this year or a rise of under one percentage point. Though in this instance, the March inflows this year rose by a substantial 31.2 percentage when compared to March 2023.
This data released by the SBP and the Pakistan Bureau of Statistics indicates that the Finance Minister’s contention that there is no ‘Plan B’ and the government is seeking a larger and longer IMF loan must be fully supported.
While the government acknowledges the challenges ahead, it is committed to taking decisive action. Once the program loan with the IMF is agreed, the government will enter the execution mode with a clear plan. The focus will be on increasing the tax-to-GDP ratio, addressing the cash bleeding of the energy sector, reforming state-owned entities, and privatizing loss-making units like PIA. These are not new pledges, but a testament to the government’s proactive approach and unwavering commitment to economic reform.
While the Finance Minister was not a member of the seven-member committee, appropriately, the Secretary Finance was a member. One would have hoped that the Prime Minister had not excluded defence, civil armed forces, police from the purview of this committee. A one to two-year sacrifice is required from all recipients of current expenditure, as it is not going to be easy to steer the economy out of its current impasse and will require more borrowing from external sources coupled with a massive decline in expenditure. Such measures alone would pave the way to achieve economic stability.
