A gloomy out­look

The Pak Banker - - FRONT PAGE -

The eco­nomic sit­u­a­tion is go­ing from bad to worse.Ac­cord­ing to the lat­est re­port, For­eign Di­rect In­vest­ment (FDI) wit­nessed a drop of a mas­sive 26% to $237.9 mil­lion in May 2018 as com­pared to $322.7 mil­lion in the same month of last fis­cal year. In the last 11 months, FDI de­creased 1.3% to $2.47 bil­lion com­pared with $2.50 bil­lion in the same pe­riod of FY17. The de­crease in in­vest­ment comes at a time when the coun­try is fac­ing huge pres­sure on for­eign cur­rency re­serves. On the other hand, Pak­istan's cur­rent ac­count deficit widened to $15.961 bil­lion, or 5.5 per­cent of Gross Do­mes­tic Prod­uct, in the first 11 months of the cur­rent fis­cal year, as the trade gap con­tin­ued to widen. The big­gest con­cern now is how to fi­nance the huge cur­rent ac­count deficit and meet ex­ter­nal debt obli­ga­tions.

The main rea­son for neg­a­tive sen­ti­ment among for­eign in­vestors is the bal­ance of pay­ments. Ex­ports rose by 15.3 per­cent to $21.345 bil­lion in the July-May pe­riod while im­ports in­creased by 14.2 per­cent to $55.232 bil­lion dur­ing the first 11 months. Oil im­ports surged 30.4 per­cent to $12.928 bil­lion. The SBP's for­eign ex­change re­serves stood at $10 bil­lion dur­ing the week ended on June 8, which can cover less than two months' of im­ports. A frag­ile ex­ter­nal ac­count po­si­tion has com­pelled the SBP to al­low the de­cline of Pak­istani ru­pee that has now weak­ened by over 15% in the last seven months.

At the same time, there was an out­flow of $161.9 mil­lion from Pak­istan Stock Ex­change in the July-May pe­riod com­pared with a $391.7 mil­lion out­flow in the same pe­riod of the last year. Remit­tances from over­seas Pak­ista­nis in­creased 2.8 per­cent to $18.028 bil­lion in the first 11 months. Net in­flows in the power sec­tor rose to $760.5 mil­lion in July-May from $633.1 mil­lion a year ear­lier. Con­struc­tion- re­lated busi­nesses fetched $ 632 mil­lion worth of for­eign in­vest­ments in 11 months as against $416.4 mil­lion recorded in the cor­re­spond­ing pe­riod of FY2017, SBP's data shows.

More prob­lems are ahead as Moody's In­vestors Ser­vice has down­graded the out­look on Pak­istan's rat­ing to neg­a­tive from sta­ble and af­firmed the 'B3' lo­cal and for­eign cur­rency long-term is­suer and se­nior un­se­cured debt rat­ings. Ac­cord­ing to Moody's,"For­eign ex­change re­serves have fallen to low lev­els and, ab­sent sig­nif­i­cant cap­i­tal in­flows, will not be re­plen­ished over the next 12-18 months. Low re­serve ad­e­quacy threat­ens con­tin­ued ac­cess to ex­ter­nal fi­nanc­ing at mod­er­ate costs, in turn po­ten­tially rais­ing govern­ment liq­uid­ity risks." To add to our dif­fi­cul­ties, theADB has can­celled an ap­proved loan of $20 mil­lion for project fi­nanc­ing. The loan was aimed at strength­en­ing the govern­ment's ca­pac­ity to pri­va­tise and re­struc­ture its pub­lic sec­tor en­ter­prises and strength­en­ing the pri­vati­sa­tion pro­gramme.

A loan com­po­nent was also al­lo­cated to en­ergy sec­tor re­form mon­i­tor­ing, as ADB sup­ported the govern­ment's re­form ac­tiv­i­ties through sus­tain­able en­ergy sec­tor re­form pro­gramme from 2013 to 2017. It is re­ported that the coun­try's en­ergy sec­tor's cir­cu­lar debt soared to Rs 547 bil­lion in June 2018 due to low re­cov­ery, high losses and mis­man­age­ment. The cur­rent wave of load shed­ding is more out of fi­nan­cial and gov­er­nance is­sues rather than for lack of gen­er­a­tion ca­pac­ity.TheSe­nate Spe­cial Com­mit­tee was re­cently told that the pub­lic sec­tor Gen­er­a­tion Com­pa­nies (Gen­cos) are pro­duc­ing less elec­tric­ity due to paucity of funds. Pri­vate sec­tor in­vestors have also ex­pressed ap­pre­hen­sion that Chi­nese in­vestors may with­draw their in­vest­ment from the sec­tor due to late pay­ment of their dues. All in all, it is a gloomy picture on the eco­nomic front which will be a big chal­lenge for the new govern­ment that will come to power af­ter the next elec­tions.

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