Pakistani economists call for quick action to avoid default amid worsening financial situation

Tailor Muhammad Razzaq (2L) sits outside his shop in Islamabad on April 29, 2022. (AFP)
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Updated 13 May 2022

Pakistani economists call for quick action to avoid default amid worsening financial situation

  • Rupee closed at Rs191.77 against US dollar on Thursday amid rising pressure for import payments
  • Experts say prior actions recommended by IMF must be implemented to ensure foreign inflows

KARACHI: Pakistani economists and financial experts have called for quick action to fix the economic woes of the country amid depleting foreign exchange reserves, rapid currency depreciation and widening trade deficit.

The country’s macroeconomic indicators are painting a dismal picture, with the national currency hitting another historic low of Rs191.77 against the US dollar on Thursday.

Pakistan has also witnessed the highest trade deficit of $39.26 billion in the first ten months of the current fiscal year (FY22). Apart from that, its current account deficit has reached $13 billion while its foreign reserves stand at $10.49 billion.

According to official statistics, inflation was also recorded at 13.4 percent in the month of April.

All these factors have created concerns the country may not be able to pay its debts in the coming months.

“There is complete confusion at the economic front and no one is paying attention, so the possibility of default can’t be ruled out,” Dr. Salman Shah, former finance minister, told Arab News on Thursday. “Your economy is not strong enough to withstand local and international impacts including high commodities rates.”

“If the situation is managed in a better manner, including the prompt implementation of prior actions of the International Monetary Fund, then I think the country could be saved [from default],” he added. “The situation started worsening after the no confidence move was tabled in the end of March 2022 and the downfall still goes on.”

Default is a failure of any sovereign government to honor some or all of its debt obligations toward its creditors that mainly happens due to political instability and financial mismanagement.

The debt default entails severe economic repercussions since the country finds it difficult to borrow again and can be asked to pay higher interest rates. The situation can also lead to higher inflation and widespread unemployment.

Some economists said the country could avert the chances of default by securing external financing.

“Pakistan has passed through this [default] stage many times in the past, but it has never materialized due to negotiations with donors and the IMF,” Dr. Kaiser Bengali, senior economist and former head of Balochistan Chief Minister’s Policy Reform Unit, told Arab News.

“This time also the situation depends on talks [with the IMF],” he added. “If the parleys fail, the country will default.”

Pakistan has to make $20 billion external debt repayments during the next fiscal year, including $7 billion Chinese and Saudi deposits that are expected to be rolled over. However, currently major inflows, including from the IMF, are uncertain due to lack of progress on talks with the fund.

Pakistan and the IMF have been negotiating for the completion of the seventh review under a $6 billion loan program. Successful negotiations between the two will get the country another $1 billion tranche and help unlock more funding from multilateral donors.

“The first step should now be to take immediate action to implement IMF’s prior actions, including the removal of fuel subsidies, to get the country out of the current crisis,” Dr. Shah said.

Economists also suggested strategies to improve the worsening state of economy, including restrictions on burgeoning imports that fuel currency depreciation and inflation.

“The current rise in inflation is a reflection of overall economic imbalances, unproductive and faulty processes, and a lack of modern tools used for cultivation and manufacturing etc.,” Dr. Ikram ul Haq, a Lahore-based economist, said. “It also signifies flawed tax policies along high costs of production in which energy plays a major part.”

“To bridge the current account deficit, the government needs to cut unnecessary imports and raise money by relying on exports,” he continued.

Dr. Haq also emphasized the importance of increasing remittances, saying the government should “seek investment from expatriates by introducing viable projects yielding quarterly dividends while asking friendly countries for investment, instead of loans.”

He added it was also possible to launch long-term sovereign bonds “as the last resort.”

Dr. Haq also recommended reduction in the discount rate to 10 percent in the next monetary policy while arguing in favor of bringing it further down to seven percent until the end of 2022.

“A one percent decrease in discount rate will reduce interest payment in the budget by Rs200 billion,” he said. “A one percent decrease in discount rate will reduce inflation by 1.3 percent.”

He maintained that inflation was caused by many factors, adding it was not possible to provide relief to the masses until all these variables were addressed in a holistic manner.

“Piecemeal firefighting approach without structural reforms will never succeed,” he continued.

Pakistani economists also said the current situation was caused by financial mismanagement and lack of a proper future policy direction.

Arab News tried to approach finance minister Miftah Ismail for his comments who did not respond till the filing of the story.

Pakistan fulfills another FATF condition, makes currency declaration mandatory for air travelers

Updated 5 sec ago

Pakistan fulfills another FATF condition, makes currency declaration mandatory for air travelers

  • No passenger will be able to board a flight or leave the airport without submitting the declaration form
  • The global financial watchdog praised Pakistan for implementing its recommendations in its last meeting

ISLAMABAD: The Civil Aviation Authority (CAA) of Pakistan has made it mandatory for all incoming and outgoing passengers to fill out a currency declaration form, said an official statement on Tuesday, to meet yet another requirement of the Financial Action Task Force (FATF).
Pakistan has been on the international watchdog’s “grey list” of countries since 2018 due to inadequate controls over money laundering and terrorism financing.
However, the country moved closer to exiting the list in recent months after implementing FATF recommendations to strengthen its financial system.
The Paris-based international watchdog also praised Pakistani officials for making substantial progress while saying its team would soon carry out an onsite visit of the country.
The CAA notification on Tuesday said no passenger would be allowed to board a flight or leave the airport without submitting the declaration.
“For inbound flights, airlines are required to ensure in-flight announcement by the flight crew for every inbound flight for submission of subject declaration wherein the passengers will mention the currency under the regulatory requirement of FATF,” the notification informed.
“The said declaration will be deposited at the customs counter before the immigration desk at international arrival,” it added.
The CAA said airline staff and travel agents should provide a copy of the declaration form to all potential passengers who intend to be on an outbound flight while booking their tickets.
“At check-in counters, airlines are directed to issue boarding pass only once the passenger has deposited the declaration with the them,” the notification added.

Pakistan's finance minister criticizes manufacturers for importing parts instead of building them

Updated 19 min 35 sec ago

Pakistan's finance minister criticizes manufacturers for importing parts instead of building them

  • Miftah Ismail says cellphone manufacturers were only adding five percent value to their products
  • He points out that automobile manufacturers had not exported cars to lucrative destinations in 30 years

ISLAMABAD: Federal Minister for Finance and Revenue Miftah Ismail on Wednesday highlighted the structural problems of the country’s economy, saying that Pakistani companies preferred to import parts of their products instead of manufacturing them indigenously at home.

The government recently imposed a temporary ban on the import of luxury items since it was facing a massive current account deficit along with dwindling forex reserves and a rapidly depreciating currency.

The finance minister issued the statement against the same backdrop while addressing a conference of business leaders in the federal capital where he specifically mentioned the country’s cellphone and automobile manufacturers.

“We have given subsidies and 10 percent duty advantage to mobile industry to manufacture phones in Pakistan but their value addition is not more than five percent,” he said. “They get all of their parts from outside and only assemble them here. We have given double duty protection than its value addition and the same thing holds true for car manufacturing companies as well.”

Ismail noted that automobile manufacturers had been working in Pakistan for more than 30 years, but they had not exported vehicles worth a single dollar.

“Pakistani companies are selling inside the country only, though they should try to sell [their products] in rich markets of the United States, Europe and far eastern countries,” he added. “They sell locally to earn more profit because it is a protected market.”

The minister pointed out that out of Pakistan’s $30 billion exports, around $20 billion were generated by the textile sector.

“We import $80 billion worth of goods from abroad which is unsustainable,” he continued. “Our industries have to increase exports instead of only making local sales.”

Ismail also maintained that agriculture was the backbone of Pakistan’s economy, though he added it needed more innovation by adopting advanced Agri-Tech.

“My focus is to strengthen our agriculture as we have imported $450 million tons of wheat this year and more is still required,” he said.

The money spent on the import of wheat, the minister continued, could be used to support farmers and introduce latest technology in the sector.

Pakistani minister promises voting rights to overseas nationals while visiting Saudi Arabia

Updated 40 min 21 sec ago

Pakistani minister promises voting rights to overseas nationals while visiting Saudi Arabia

  • The interior minister met expats in Jeddah where he described overseas Pakistanis as country’s ‘assets’
  • The kingdom is home to the highest number of Pakistanis living abroad, making it the biggest source of remittances

ISLAMABAD: Federal Interior Minister Rana Sanaullah told a group of Pakistani nationals in Saudi Arabia on Tuesday the government was finalizing the modalities of voting process for citizens living abroad ahead of the next general elections that are scheduled to take place in August next year.

The minister, who went to the kingdom to perform Umrah, met with representatives of Pakistani community in Jeddah where he described the overseas nationals as “the country’s assets.”

Saudi Arabia has the highest number of Pakistani expatriates, making it the top source of remittances for the South Asian country.

“The government will ensure that overseas Pakistanis manage to use their voting right in the coming elections,” the interior minister said, adding it was “finalizing the modalities of the voting procedure.”

Pakistan’s ruling coalition revoked the voting right of overseas Pakistanis in May by passing the Election Amendment Bill, 2022, which also prevented the use of electronic voting machines (EVMs) in general elections.

The country’s ousted prime minister Imran Khan’s administration sanctioned the use of EVMs during a joint parliamentary sitting in February, though its political rivals resisted the move and vowed to challenge it in the country’s top court.

“Overseas Pakistanis are our best national asset,” Sanaullah said. “Their remittances are key for the economic stability [of the country].”

Discussing the Pak-Saudi ties, the minister said the kingdom had always helped Pakistan in the most difficult of situations.

“We are grateful to the Saudi government for providing employment opportunities to Pakistani workers and professionals,” he added.

Five more killed in Pakistan’s flood-hit Balochistan province as torrential rains continue

Updated 17 August 2022

Five more killed in Pakistan’s flood-hit Balochistan province as torrential rains continue

  • The death toll caused by monsoon rains this year has climbed to 201 in Pakistan’s southwestern province
  • Official statistics reveal 635 people have lost their lives in the country since the beginning of monsoon season

QUETTA: Three women and two children were killed in Pakistan’s southwestern Balochistan province on Tuesday night after their vehicle was swept away in a flash flood in Panjpai near Pishin district, said a senior official deployed in the area.

Pakistan’s Meteorological Department warned last week that torrential rains were going to lash the country's southern region, saying they would continue until August 18.

So far, 201 residents of Balochistan have lost their lives in rains and floods since the beginning of the monsoon season in mid-June.

Speaking to Arab News, the deputy commissioner of Pishin, Zafar Ali, confirmed that a vehicle carrying women and children attempted to cross flood water while moving from Quetta to Killa Abdullah district when the accident took place.

“Locals told the driver to take another route since flood water was moving through the area, but he accelerated his vehicle which was swept away,” he said. “Three women and two children were killed in the incident.”

Ali informed that security forces had recovered the bodies from Mirani area of district Pishin, adding they had been handed over to the bereaved family.

Official statistics gathered by the provincial authorities reveal that more than 40,000 houses have been damaged in recent floods in Balochistan that have also affected 400,000 acres of agricultural land.

The situation has also made it difficult for the residents of the province to travel to other areas since train services to Sindh and Punjab have been suspended by the authorities.

“The district administration in Sibi has set an embankment to stop the flow of water toward the city,” Muhammad Kashif, a railway official, told Arab News. “Until water is drained out from the area, it will be difficult to resume train service since the tracks are completely covered with water.”

He informed the railway authorities were helping passengers travel to nearby towns by hiring buses, adding these people would then catch a train to their respective destinations.

Pakistan’s federal cabinet on Tuesday decided to form a committee, chaired by the climate change minister, which would give its recommendations on launching projects to mitigate the impact of harsh weather conditions on the lives of people.

Pakistan is among the top eight countries most affected by climate change, though its share in the world carbon emissions is nearly one percent.

According to the National Disaster Management Authority, the country has faced unprecedented downpour during the monsoon season this year which claimed 635 lives in the last two months.

The flood forecasting division of the Pakistan Meteorological Department issued an alert on Tuesday, saying India had released 171,797 cusecs water which was likely to flood rivers in Pakistan.

UAE presents Order of the Union award to Pakistan’s army chief

Updated 17 August 2022

UAE presents Order of the Union award to Pakistan’s army chief

  • General Bajwa visited the Arab state where he discussed defense cooperation with UAE officials
  • The two countries have maintained strong bilateral relations since the Arab state’s formation in 1971

ISLAMABAD: The United Arab Emirates (UAE) on Tuesday presented a top award to Pakistan’s army chief General Qamar Javed Bajwa during his visit to Abu Dhabi where he discussed defense and security cooperation with officials of the Arab country, said a statement circulated by the military’s media wing, ISPR.

Pakistan and the UAE have maintained strong bilateral relations since the Gulf state was formed in 1971.

The UAE is also the second largest source of remittances to Pakistan and has frequently provided economic and financial assistance to the South Asian nation.

According to the official statement, Bajwa met UAE President Sheikh Mohamed Bin Zayed Al Nahyan during the visit.

“COAS [Chief of Army Staff] was ... conferred upon Order of the Union Medal by President of UAE for making significant contributions in furthering bilateral ties between both the countries,” the ISPR said.

“During the meeting matters of mutual interest, bilateral defense and security cooperation and regional security situation in the Middle East came under discussion,” the statement added.

The UAE president and the Pakistani army chief agreed the two countries shared a history of cordial relations and spirit of brotherhood which had led to an enduring partnership between them