Media exaggerating on gross financing needs: Govt

Staff Report
Sunday - December 31, 2017
ISLAMABAD: “Recently there have been reports, in media, regarding high gross external financing requirements and the risks they pose to sustainability of the external account going forward” adding “Pakistan’s gross external financing requirements in fiscal year (FY) 2018 have been misreported, with different media reports putting the figure differently, ranging between $31 billion, to $26 billion, to $17 billion, to $12 billion,” finance ministry spokesman, in a statement on Saturday, noted.

According to detail, finance ministry spokesman continued, 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 recognised accounting standard, Pakistan’s gross financing need for 2017-18 is estimated at $17 to $18 billion (5 to 5.3 percent of gross domestic product (GDP)).

This gross financing need represents current account deficit, medium long term amortisation 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 that is 5.6 percent 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 investments (FDIs), 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 two to $2.5 billion.

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 percent growth in the first five months of incumbent year.

Remittances have now returned to growth zone after remaining negative last year. FDI registered a phenomenal growth of 57 percent in first five months of incumbent 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 foreign-exchange reserves and the sustainability of external account should best be avoided, he concluded.