The official from the State Bank of Pakistan (SBP) concurred with the Finance Ministry official maintaining that the country's financing requirements for the entire year would be between 15.5 billion dollars to 17 billion dollars. The SBP official, however, contended that "we are going to peak in the current fiscal year but things will ease from the next fiscal year with a slowdown in the China Pakistan Economic Corridor (CPEC)-related imports". And added that measures are in place to deal with this issue and their impact would be visible in six months.
The admission of how the widening current account deficit would be plugged openly challenges the narrative of the PML-N government notably that growth momentum, backed by infrastructure development projects under the aegis of the CPEC, as well as adept handling of the macroeconomy has led to stabilization of the economy. During the past two to three years, exports have been declining, attributed to an overvalued rupee that made our products uncompetitive in the international market, and inordinate delays in sales tax refunds with the objective of artificially shoring up revenue collection which negatively impacted on the liquidity needs of the exporters compelling them to borrow from the banks at rates that again made their products uncompetitive; while imports have been rising with tariff concessions extended to Chinese companies engaged in CPEC projects. The government's claim that capital imports have risen which, would in time, fuel the growth rate is not backed by data on the SBP website that shows a rise in import of fuel as well as transport equipment far outpacing a rise in machinery imports.
Remittances have been rising but not by enough to bridge the widening gap between exports and imports. However, one would assume that the Finance Ministry must be seriously concerned about the country being placed on the grey list by Financial Action Task Force (FATF) in June this year, a placement which would surely have implications on remittances as they are channeled through the Swift network operated from the US, a country that the Advisor to the Prime Minister on Finance, Revenue and Economic Affairs revealed had spearheaded the move to place Pakistan on the grey list to 'embarrass' the country. In other words, one may expect delays in remittance inflows and the possibility of an overall decline is a distinct possibility.
Rana Afzal, the Minister of State for Finance recently stated that if placed on the FATF, Pakistan would have difficulties in paying interest as well as principal as and when due on foreign loans and revealed that the government is considering issuing global bonds. However, these bonds, defined as debt equity, would probably be at high rates of return given the expectation of being placed on the grey list by FATF in June. Miftah Ismail has dismissed concerns about the negative economic implications, particularly with respect to growth, of being placed on the grey list; however, this may well be an attempt to ease market concerns and perceptions.
To conclude, what is a source of serious concern is the fact that the PML-N would complete its tenure by 5 June and the Caretakers installed who would not be empowered or qualified to deal with this issue. It is imperative that all political parties be taken on board on this issue and a comprehensive strategy be formulated in consultation to ensure that the country presents a united front in June.