Pakistan foreign exchange reserves are stable
A news report published in a section of press claiming that Pakistan's foreign exchange reserves are depleting and that it would not be possible to float bonds unless the stalled IMF programme is revived, is completely fallacious and misleading on all three counts, the Ministry of Finance says in its clarification.First, it says, Pakistan's foreign exchange reserves are stable and certainly not depleting.
The marginal fall in reserves referred to in the news item is because of the outflows of loans taken from commercial banks. The Ministry of Finance has already completed the process for refinancing of these loans and the funds are expected to flow back in during the next two to three weeks. More so, the stability in our foreign exchange reserves is reflected in the improving exchange value of the rupee.
Second, it says, the IMF programme has not stalled. The Government of Pakistan, including the Ministry of Finance and the State Bank of Pakistan as well as all ministries concerned, are in constant consultation with the IMF regarding the different policy initiatives and interventions currently being undertaken. As a trusted development partner and economic adviser, the IMF is consistently guiding and steadfastly supporting the government during these unprecedentedly difficult times created by the COVID-19 pandemic.
"As the Ministry of Finance has clarified earlier also, we can no longer view the IMF programme in the conventional sense. Programme benchmarks, of course, remain critical, but their timing has to be adjusted according to grave socio-economic challenges posed by the pandemic," reads the clarification.
Third, it says, Pakistan's ongoing Medium-Term Note (MTN) Programme for the issuance of Eurobonds/international Sukuk is on track. The Ministry of Finance has already initiated the process for engagement of financial advisers, which is expected to be completed by mid-November 2020. After completion of all required formalities, the international capital markets will be tapped during January/February 2021. "It must be noted that yields on Pakistan's international bonds have returned to pre-COVID levels and these bonds are trading at a premium, indicating the confidence of global investors in Pakistan's economy." Therefore, it says, the government does not feel any cause of concern with respect to new issuances and the execution of the MTN programme.
"The Ministry of Finance would like to make it very clear that Pakistan's bond programme or its external sector stability is not under any kind of threat, as has been falsely claimed in the news report in question," the clarification reads.
Mehtab Haider adds: The Ministry of Finance has issued its statement without giving numbers. First, they claimed that the foreign reserves were not depleting and then termed decrease as "marginal", however, the official data released by the SBP showed that the foreign reserves held by the SBP reduced by over $900m in last 30 days since September 18, 2020. The reserves held by the SBP decreased from $12.701 billion on Sept 18, 2020 to $11.798 billion on October 09, 2020, shows the data released by SBP. At a time when Islamabad received $300 million inflows from the ADB, the reserves held by the SBP depleted by close to $1b that could be termed substantial not marginal.
Secondly, the Ministry of Finance claimed that it was making arrangement for re-financing of commercial loans to avoid falling of reserves. The Ministry concedes that the building up of foreign reserves were dependent upon expansive and easy mode of financing in shape of seeking commercial loans. Islamabad had already exhausted portion of programme loans from the multilateral institutions and without revival of IMF programme it would not be possible to generate concessional programme loans from the WB and Asian Development Bank. So reliance is increasing on commercial borrowing from the international banks.
Thirdly, its beyond imagination that how the ministry could deny IMF programme is not in stalled mode because second review did not complete which should have been completed by Feb/March 2020. This correspondent also wrote in its story that the arrangements were underway for floating of two bonds.
Now its challenge for the ministry for floating international bonds at cheapest rate without revival of IMF programme but they know the stamp of IMF programme was pre-requisite for moving ahead to get confidence of international investors.