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Saturday, May 18, 2024

IMF bailout crucial to meet external obligations

In the absence of IMF bailout, Pakistan’s external financing pipeline appeared drying up as it received 40% lower inflows.

The country received $5.596 billion only in the first half of the current fiscal year against $9.4 billion last year. The foreign remittances and inflows contributed to just 24.5% of the $22.8 billion budgetary target. It is pertinent to mention that without an immediate revival of the fund program, the country would be unable to meet its external obligations with a higher pace of outflows and foreign exchange reserves dropped to just $3 billion.

Moreover, in the first five months of the current financial year (July-November), Pakistan received about $5.115 billion in foreign loans which is almost 14% more than it received last year. The monthly report by the Ministry of Economic Affairs (MEA) on Foreign Economic Assistance (FEA), said it received about $5.595 billion in foreign assistance in July–December 2022 compared to $9.43 billion in the previous year.

Debt inflows continue to drop as foreign reserves decline

In December Pakistan received only $478 million with a drop of 43% compared to $ 842 million in November 2022 and $ 4.56 billion in December 2021. According to MEA reports the foreign economic assistance for the full fiscal year 2021-22 accounted for $ 16.975 billion against inflows of $ 9.4 billion in the first half of the financial year 2022 with a target of $ 14.1 billion. Similarly, the report also suggests that the foreign debt from overseas Pakistanis stood at $ 190 million in the first half of the financial year 2023 against the full-year target of $1.63 billion.

Read more: IMF mission arrives in Pakistan for the 9th review

Unlike previous years, there were only three major sources of external inflows this year. The foreign reserves include $4.77 billion from multilateral lenders, $708 million from bilateral lenders, and $200 million from commercial banks against a budgetary target of $7.5 billion. However, the private commercial banks remained hesitant to invest in the absence of the IMF’s program. Likewise, international bonds had also dried up due to low foreign exchange reserves and the government was unable to meet a target of $ 2 billion.

Furthermore, Asian Development Bank turned out to be the biggest multilateral lender with almost double loan disbursements of up to $ 1.9 billion in the first half of the financial year 2023. This was followed by the $1.166 billion disbursement from IMF, but could not materialize due to differences with the authorities over the 9th review.

Additionally, the World Bank disbursed almost $688 million in six months compared to its $961 million last year. The AIIB (Beijing) came up with $521 million in disbursements this year against $38 million last year. Similarly, the Islamic Development Bank also extended almost $175 million including $161 million in short-term financing.

Besides multilateral lenders, Saudi Arabia and China also extended about $600 million and $55 million, respectively.