ISLAMABAD: In the wake of high optimism shown by Finance Minister Ishaq Dar to increase foreign currency reserves up to $10 billion by end March 2014 seems highly ambitious one keeping in view more outflow for repaying the previous IMF loans than inflows pouring in through installments under existing Extended Fund Facility (EFF).
At the moment, the foreign exchange reserves held by the State Bank of Pakistan nosedived to $2.8 billion, lowest ebb in last one decade, and foreign currency held by the commercial banks around $5 billion. Any expectation of increasing foreign exchange reserves by more than $2 billion requires smooth planning and its timely execution on all fronts to achieve the desired results.
Till September 2014, there will be more outflows of dollars paying back the previous loans than inflows so the government will have to come up with feasible plans to materialize its dream into a reality.
To review external financing situation, Senator Dar reiterated that with our sincere efforts we will take the foreign exchange reserves to more than $ 10 billion by the end of March, 2014 and around $ 16 billion by the end of December, 2014.
For delivering on this front, the PML (N) led government will have to implement its ambitious privatization plan, launching international bonds, recover outstanding amount from Etisalat on account of PTCL privatization, auctioning of next generation technology (3G or 4G), ensure restoration of budgetary support from World Bank, Asian Development Bank and other bilateral donors with immediate effect. There are many ifs and buts in achieving the desired results.
The Finance Ministry argues that International Financial Institutions (IFIs) have reposed their confidence in the policies of the present government and expressed that the economy was now moving in the right direction.
On other side, the IMF states after the second review held at Dubai that the Fund mission recognizes the authorities’ resolve to pursue agreed structural reforms to enhance medium term growth prospects and rebuild foreign exchange reserves to underpin investor confidence.
Timely implementation of reform measures articulated in the National Energy Policy is of high priority in ensuring affordable and reliable supply of energy. Recognizing that fixing Pakistan’s energy problem calls for a medium term strategy of sustained reform, the authorities agreed to press forward with efforts to improve energy sector governance, promote private investment in electricity power generation and modernization, and transition to a market-based system of gas pricing.
Furthermore the government’s privatization agenda remains on track with capital market transactions for some companies, investments by strategic investors in others, and restructuring to improve resource allocation and limit poor performance. Decisive efforts to broaden the tax net through the elimination of tax exemptions and loopholes granted through Statutory regulatory Orders (SROs) are critical to the future of Pakistan’s economy.
The IMF also says that the authority’s reform program remains broadly on track, with the government meeting all of the quantitative performance criteria by end December 2013, with the exception of the targets on SBP’s net swap/forward positions and the ceiling on government borrowing from SBP.
The authorities have reaffirmed their commitment to adopt the necessary corrective actions, including measures to improve the financing of government debt through a medium-term strategy of institutional development and deepening of the government’s securities market. Progress on the unwinding of the SBP’s swap/forward positions to reach program limits is underway, and progress on this front is satisfactory so far.
Now it is high time to make realistic plans on increasing dwindling foreign currency reserves instead of making plans contrary to the ground realities.
