Recently there have been reports in media regarding high gross external financing requirements of Pakistan and the risks they pose to sustainability of the external account going forward. Pakistan's gross external financing requirements in FY 2018 have been misreported with different media reports putting the figure differently ranging between US$ 31 billion, to US$ 26 billion, to US$ 17 billion, to US$ 12 billion.
In this context the spokesman of the Ministry of Finance said here Saturday that such media reports misinterpret external account data and are entirely misleading. First, Pakistan continues to maintain a healthy level of foreign exchange reserves despite pressures. Second, the gross financing need for the year 2018 is not as high as reported in the media. As per international standards, a country's gross financing need is an aggregate of current account deficit plus debt servicing of the year. Based on this internationally recognized accounting standard, Pakistan's gross financing need for 2017- 18 is estimated at US$ 17 to 18 billion (5 to 5.3 % of GDP). This gross financing need represents current account deficit, medium long term amortization and stock of short term external debt. It is to be noted that in FY 2016-17 Pakistan's gross financing need was 17.107 billion i.e. 5.6% of GDP of that year. As such the external gross financing need this year will be less than the last year in terms of percentage of GDP.
Furthermore, it is clarified that arrangements are in place to meet the gross external financing need of the country. These arrangements include government official inflows from multilateral and bilateral sources, Sukuk / Euro bonds, privatisation proceeds, foreign direct investment, private capital inflows and commercial financing, if necessary. After accounting for these arrangements, the net financing gap that the country faces this year is estimated to be in the range of US$ 2 to US$ 2.5 billion.
The spokesman said data for the first five months of the current financial year reveals a rebounding external sector of the economy. After remaining in negative territory successively for several years, exports have shown 12% growth in the first five months of this year. Remittances have now returned to growth zone after remaining negative last year. FDI registered a phenomenal growth of 57% in first five months of this year. More importantly, imports are showing visible deceleration on month-on-month basis. With these multifaceted positive-trends further strengthening in the second half of the current financial year, Pakistan will be able to make up for the external gross financing comfortably while maintaining the foreign exchange reserves at a healthy level. Therefore, any speculation with respect to the foreign-exchange reserves of the country and the sustainability of the external account should best be avoided, the spokesman concluded.