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 Sunday 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.