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Pakistan’s external debt to climb to $103bn by June 2019: IMF report

The International Monetary Fund (IMF) has assessed Pakistan’s gross external financing needs at a record $27 billion for the next fiscal year, but warned that arranging the financing at favourable rates will now be a challenge due to risks to the country’s debt sustainability.

In its post-programme monitoring report, the IMF also forecast that due to additional borrowings, Pakistan’s external debt would jump to $103.4 billion by June 2019, up from this June’s projected level of $93.3 billion.

Despite changing goalposts twice, Pakistan’s public debt would remain higher than the limit prescribed in the revised Fiscal Responsibility and Debt Limitation Act, showed the IMF report.

Certain tables in the report, which the IMF withheld in the past, show the adverse implications of the PML-N government’s borrowing spree over the past four and a half years. The policy of building foreign currency reserves through expensive loans and ignoring the export performance has come to haunt the policymakers.

The IMF said the elevated current account deficit and rising external debt servicing, in part driven by China-Pakistan Economic Corridor (CPEC)-related outflows, were expected to lead to higher external financing needs.

External financing would surge to $24.5 billion by June this year, the IMF said, adding the country’s needs were expected to rise to around $27 billion by the end of fiscal year 2018-19 (FY19) and would go up to $45 billion by FY23.

At that time, Pakistan’s external financing needs will be equal to 10% of the national output, which is a dangerous level.

“Risks to public debt sustainability have increased since the completion of the EFF (Extended Fund Facility) programme. Public and publicly-guaranteed debt is expected to remain elevated at 68% of GDP by FY23,” the IMF said.

Gross fiscal financing needs will likely exceed 30% of GDP from 2018-19 onwards, in part reflecting increased debt service obligations, it added.

However, the more alarming part is the growing challenges to arranging foreign loans. It said Pakistan had so far remained successful in contracting external borrowing that softened the impact of rising external imbalances on foreign exchange reserves.

“While the level of external debt has remained moderate, continued mobilisation of external financing at favourable rates could become more challenging in the period ahead against the background of rising international interest rates and increasing financing needs,” said the IMF.

It said continued scaling up of CPEC investments could accelerate the build-up of related external payment obligations, adding Pakistan’s capacity to repay could deteriorate at a faster pace, with faster depletion of foreign exchange reserves having adverse effects on economic growth.

Debt levels are higher than envisaged during the 2017 Article IV consultation, largely reflecting a significantly higher fiscal deficit.

The IMF’s projections show a bleak path for the next five years. Public and publicly-guaranteed debt is projected to remain close to 70% of GDP by 2023 under the baseline scenario.

ADB to give $140 mn for improving K-P roads

Pakistan and the Asian Development Bank (ADB) on Wednesday signed an agreement for a $140-million loan to improve road network and enhance road safety and maintenance in Khyber-Pakhtunkhwa (K-P).

The agreement was signed by Economic Affairs Division Secretary In-charge Syed Ghazanfar Abbas Jilani and ADB Country Director Xiaohong Yang. It was inked three months after approval from the ADB board of directors.

The K-P Provincial Roads Improvement Project will rehabilitate eight key road sections with total length of 214 kilometres with higher road safety and climate resilience standards to ensure uninterrupted flow of people and goods within the province, according to a statement issued by the local office of the Manila-based lending agency.

The $164-million project, in which the government of Pakistan will contribute $24 million, is expected to be completed by the end of 2022. This is for the first time that the provincial road project will implement two pilot performance-based maintenance contracts covering about 104km of roads, said the ADB.

Under the contracts for maintenance and operations of road assets, the role of a contractor is changed from a project executor to a road asset manager. This will strengthen the role of the provincial highways department.

Pakhtunkhwa Highways Authority (PKHA) intends to rehabilitate part of its highway network under this project to improve the performance of roads and achieve higher service levels in the province. With the rehabilitation of these roads, the overall maintenance cost will go down significantly.

Owing to the proposed interventions, these 214km of roads will require only periodic maintenance after five to six years and resultantly the maintenance burden on the provincial road authority will come down in forthcoming years.

The rehabilitation of these roads, in accordance with the proposed programme, will not only enhance their capacity, but will also result in improved service delivery, it added.

Speaking on the occasion, Jilani appreciated the ADB’s support for improving infrastructure and urban services in Pakistan. He reiterated that the government of Pakistan is committed to improving regional connectivity by improving physical infrastructure and economic activities.

Provincial roads of K-P will enhance economic mobility of the China-Pakistan Economic Corridor (CPEC) as well as Central Asia Regional Economic Cooperation Corridor, he added.

The project initially covered 11 roads with an estimated length of 305km, but after preparing the design, the length was reduced to 293.6km. Three roads with total length of 85.5km were later excluded from the list for economic and financial reasons.

The roads that will be improved include the Shah Alam-Sardaryab section covering 11.77km, Khair Abad-Kahi (Nizampur) section of 23.14km, Umerzai-Harichand-Shergarh section of 29km, Risalpur to Jehangira via Pir Sabaq-Misri Banda with link to Akora Khattak and Mardan Ring Road via Motorway Wali Interchange covering 37km, Jhandai-Sang-e-Marmar section (Mardan) of 33.4km, Adina-Yar Hussain-Lahore Road covering 24.37km, Haripur-Hattar-Taxila section of 22km and Maqsood-Kohala section of 33.5km.

Foreign exchange: SBP’s reserves drop $107mn, stand at $12.1bn

Foreign exchange reserves held by the State Bank of Pakistan (SBP) continued to remain under pressure, decreasing 0.88% on a weekly basis, according to data released by the central bank on Thursday.

The fall marks the 13th successive week of decline, sparking concern over Pakistan’s ability to meet future payment obligations and manage a bulging current account deficit.

On March 9, foreign currency reserves held by the central bank were recorded at $12,125.7 million, down $107.5 million or 0.88% compared to $12,233.2 million in the previous week.

The decrease in reserves was attributed to external debt servicing and other official payments.

Overall, liquid foreign reserves held by the country, including net reserves held by banks other than the SBP, stood at $18,240.4 million. Net reserves held by banks amounted to $6,114.7 million.

Pakistan raised $2.5 billion in November 2017 by floating dollar-denominated sovereign bonds in the international market in a bid to shore up official reserves.

A few months ago, foreign currency reserves surged due to official inflows including $622 million from the Asian Development Bank (ADB) and $106 million from the World Bank.

Earlier, the SBP received $350 million under the Coalition Support Fund (CSF). In January, the SBP made a $500-million loan repayment to the State Administration of Foreign Exchange (SAFE), China.

 

Conference: govt to present energy policy to CCI next month

Participants of an energy conference on Wednesday underlined the need for cashing in on the opportunities arising in Pakistan’s growing off-grid solar power industry in order to address critical energy shortages.

The International Finance Corporation (IFC), a member of the World Bank Group, joined forces with Pakistan Microfinance Investment Company (PMIC) and the Alternative Energy Development Board (AEDB) to host the conference and highlight the opportunities in the off-grid solar industry to bridge the energy deficit.

More than 200 delegates from the private sector, government, rural support programmes, donor and other international organisations attended the event.

Minister for Power Division Sardar Awais Ahmed Khan Leghari, in his address, said “it is time to nurture alternative energy by making systems more efficient and less bureaucratic, hence, the private sector and distribution companies must join hands to promote affordable lighting solutions in the off-grid areas.”

Praising organisers of the conference, Leghari pointed out that the government was working on the national electricity policy that would be tabled before the Council of Common Interests (CCI) next month for approval.

He boasted that the government had brought about a lot of improvement in power generation, distribution and transmission and more improvements were under way. He, however, acknowledged that wheeling policy was not being implemented by the distribution companies which, if executed, would give a boost to solar energy and attract more investors.

Power supply would get better in the current year and the government was also focusing on improving the electricity distribution system, he said.

The minister anticipated savings of Rs150 billion after the shifting of tube wells to solar power in Balochistan.

World Bank Country Director Illango Patchamuthu said: “Over one billion people live without electricity around the world. We are on the right path to achieve universal access to energy by 2030, but it is vital that we do more as a group to help meet this target.”

Digitalisation to help meet 6 percent growth target: Zubair

Pakistan has done a massive job by deploying digital technology that significantly supports acceleration of economic growth to the 6 percent target this year and beyond in the years to come, said Sindh Governor Mohammad Zubair.

“Next level of economic advancement cannot take place if this side (digitalisation of the economy) is ignored,” Zubair emphasised while addressing the 11th International Mobile Commerce Conference 2018.

Pakistan has successfully deployed 3G/4G mobile internet infrastructure over the past four years. Four cellular services companies are operating in the country which is the key to digitalisation of the economy. The country is also planning to test the fastest 5G technology.

More than half of Pakistan’s population is using mobile phones as the country has 120 million active SIMs. One-fourth of the population – 50 million – is using smartphones which are 3G/4G compatible. Zubair, who is also a key member of the federal government’s economic team, said the technology in place was about to get people living in rural areas involved in the economic growth process.

“Technology is going to reduce the gap between rich and poor and narrow down rural-urban divide and that will be the real economic growth,” he remarked. “Public and private sectors must work together for the national cause (digital economy).”

State Bank of Pakistan (SBP) Executive Director Development and Finance Group Syed Samar Hasnain said the central bank was making sure that all the required resources, including financial resources, remained available for mobile commerce and digitalisation-driven economic growth.

He pointed out that the number of branchless banking accounts had grown over 21% to 33 million in the July-September 2017 quarter compared with 27 million in the previous April-June quarter.

SBP Executive Director Banking Policy and Regulations Group Syed Irfan Ali said the central bank had targeted to increase the number of bank accounts to 100 million by 2020.

“Branchless banking will provide much-needed support in achieving the goal of financial inclusion under the SBP’s National Financial Inclusion Strategy 2015,” he said.

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