ADB says ‘no need to panic’ over Pakistan’s economy

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ADB says ‘no need to panic’ over Pakistan’s economy

Former country director thinks country will not need bailout
By MAIDAH HARIS
May.04,2018
Asian Development Bank’s (ADB) former country director Werner Liepach said Pakistan will not need a bailout package as its economy was doing well, adding that there was no need to panic even as the current account deficit widens and foreign exchange reserves continue to fall.

Addressing a media briefing at the 51st Annual Meeting of the ADB Board of Governors in Manila, Liepach said remittances continue to remain strong and would help meet external sector challenges.

“Things are pretty much okay,” said Liepach. Overseas workers’ remittances touched a seven-month high at $1.77 billion in March 2018, which came on back of the second round of rupee devaluation, he added.

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In its latest quarterly report, the State Bank of Pakistan also anticipated that the country would attract a maximum of $20.5 billion in remittances in fiscal year 2018.

Liepach, who is the director general ADB for Central and West Asia Regional Department, also maintained a positive outlook of Pakistan’s growth. He acknowledged that the budget deficit has gone up a little but it is “quite normal in election year”.

Currently, the country’s budget deficit is projected to stand at 5.5% of GDP at the end of fiscal year 2018, while SBP-held foreign exchange reserves currently amount to $11.51 billion.

Additionally, Pakistan’s current account deficit has continued to expand and the nine-month gap has increased to $12.03 billion. However, the ADB official remained optimistic.

“What’s happened is that imports have gone up quite a lot due to increased economic activity related to the China-Pakistan Economic Corridor (CPEC), which is not a bad thing.

“What is missing is that export growth hasn’t really gone as expected.”

He highlighted various factors that impact the growth of exports, including the overvalued exchange rate, which has been taken care of. “The latest information that I received is that exports are starting to pick up again,” he informed.

Now, due to the early rise in imports followed by late pick-up of exports, there has to be a reaction in the foreign exchange reserves, which is of concern, but Pakistan has a way of financing its reserves and “there is no need to panic”.

He added that ADB and the World Bank are not the only ones in town as Pakistan has managed to secure a loan from China. “The country is also contemplating tapping the capital markets, because the market has been responsive lately.”

Stressing on ADB’s role, Liepach said the agency always gave policy-based loans to finance structural reforms, which in no way is a bailout.

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This is the same approach that the Manila-based lending agency has adopted to transform the energy sector in the country.

The ADB wanted Pakistan to implement the Advanced Metering Infrastructure (AMI) project, which would mitigate load shedding. But the Ministry of Power and the Planning Commission were reluctant to go forward with the project. Despite efforts by ADB and the support of former finance minister Ishaq Dar, the $400-million project was put on hold. The project is still awaiting government’s approval.

“The government has not yet taken a final decision. There have been concerns about the technology and the cost. It’s a new technology so people sometimes may not appreciate the changes,” Liepach remarked.

Published in The Express Tribune, May 4th, 2018

 

[Chakar The Great]

Indians were the ones panicking most. I hope this would keep little faith in failing bankrupt Pakistani state.

 

[Metanoia]

I am not understanding Asian Development Bank’s (ADB) former country director Werner Liepach, at all.

From the entire article I picked up these three key indicators;

1) “What’s happened is that imports have gone up quite a lot due to increased economic activity related to the China-Pakistan Economic Corridor (CPEC), which is not a bad thing. (Agreed, not a bad thing at all)

2) “What is missing is that export growth hasn’t really gone as expected.” (Disastrous, why are they not going as expected? What is the use of all the FDIs and loans if there are nothing concrete is taking place?)

3) ...due to the early rise in imports followed by late pick-up of exports, there has to be a reaction in the foreign exchange reserves, which is of concern, but Pakistan has a way of financing its reserves and “there is no need to panic”. (Why is there no need to panic? What mystical way of financing its reserves is he talking about here? More loans?)

Also, am I missing something or the heading by The Express Tribune seems to be completely misleading? I don't think so that this is an official ADB report, rather this is an opinion of a former country director.

 

[SunilM]

I am not understanding Asian Development Bank’s (ADB) former country director Werner Liepach, at all.

From the entire article I picked up these three key indicators;

1) “What’s happened is that imports have gone up quite a lot due to increased economic activity related to the China-Pakistan Economic Corridor (CPEC), which is not a bad thing. (Agreed, not a bad thing at all)

2) “What is missing is that export growth hasn’t really gone as expected.” (Disastrous, why are they not going as expected? What is the use of all the FDIs and loans if there are nothing concrete is taking place?)

3) ...due to the early rise in imports followed by late pick-up of exports, there has to be a reaction in the foreign exchange reserves, which is of concern, but Pakistan has a way of financing its reserves and “there is no need to panic”. (Why is there no need to panic? What mystical way of financing its reserves is he talking about here? More loans?)

Also, am I missing something or the heading by The Express Tribune seems to be completely misleading? I don't think so that this is an official ADB report, rather this is an opinion of a former country director.

Not only this but....

Absence of CSF, gas cess leads to Rs300b revenue shortfall

ISLAMABAD:

The government is facing a revenue shortfall of Rs300 billion primarily in the wake of no fund flows under the Coalition Support Fund (CSF) and gas infrastructure development cess (GIDC) for the ongoing fiscal year 2017-18.


The issue was taken up by the cabinet in a meeting held on April 17.

Meeting participants told the cabinet that in 2017-18, the budget deficit for the first nine months stood at 4.1% of gross domestic product (GDP), which came mainly because of a decrease in realisation of non-tax revenues and higher expenditures.

It was informed that on the revenue side, major shortfalls would be in tax revenues amounting to Rs78 billion, the CSF estimated at Rs127 billion that the US had stopped disbursing a few years ago and GIDC worth Rs95 billion that the government could not collect due to court cases.

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Earlier, the US government was releasing the CSF which was aimed at compensating Pakistan for the losses incurred in the war against terrorism.

GIDC was imposed by the previous government of Pakistan Peoples Party (PPP) in an attempt to finance the building of gas pipelines, but the current Pakistan Muslim League-Nawaz administration has spent all the collection worth more than Rs300 billion on projects like Metro bus.

So far, no pipeline has been laid by utilising the cess. Rather, public gas utilities have been forced to borrow loans of over Rs100 billion from commercial banks.

Because of the misuse of GIDC, gas consumers had got stay orders from courts that prevented the government from collecting the cess in the outgoing fiscal year.

On the expenditure side, the cabinet was told that additional expenses of Rs143 billion would be made on pay and pensions, Rs100 billion would be required for the armed forces development programme, Rs47 billion would be released under the export package and debt servicing cost would go up by Rs73 billion following rupee’s depreciation.

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Under the flexible exchange rate policy, the rupee had weakened 10% against the dollar since December 2017 which would help manage rising imports and increase faltering exports.

However, the exchange rate adjustment had burdened the government with an additional debt servicing cost of Rs73 billion in the outgoing fiscal year. In order to cope with the situation and rein in the fiscal deficit, the cabinet members proposed some policy interventions.

Among these measures, the government will ensure collection of a minimum of Rs3.935 trillion in tax revenues against the target of Rs4.013 trillion, restrict the annual Public Sector Development Programme to Rs750 billion compared to the budget estimate of Rs1.001 trillion and ensure generation of Rs256 billion worth of surplus by provincial governments against the budget estimate of Rs347 billion.

Published in The Express Tribune, May 4th, 2018.

https://tribune.com.pk/story/1701885/2-absence-csf-gas-cess-leads-rs300b-revenue-shortfall/