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Finance ministry shrugs off possibility of default
By Nasir Jamal
Thursday, 09 Oct, 2008
LAHORE: Federal finance ministry officials shrug off reports of Pakistans possible default on its foreign obligation over the next several months as mere rumours. But they also dont see dollars flowing into the country any time soon.
This is all hot air, a senior finance ministry official, who requested anonymity, said of speculations that Pakistan could default on its foreign repayment obligation when they become due in February if it didnt receive immediate bilateral and multilateral assistance to shore up its foreign currency reserves.
The speculations about default got credence when the Standard & Poors downgraded Pakistans sovereign ratings to the junk category on Monday.
We have enough reserves to cover our expenditure and avoid any immediate possibility of default. Besides, we are expecting help from our friendly countries. Talks are already underway, the official, who has worked at important positions in the ministry during the last seven years, told Dawn.
But he did not say how much foreign assistance was the ministry expecting in the short to medium term, and when.
Islamabad is already sending a delegation to the United States for talks with the international finance institutions (IFIs) including the World Bank and the International Monetary Fund.
But another finance ministry official warned against attaching any hopes with the meeting. Its a routine meeting that has been set for October. It is not going to yield any dollars for Pakistan over the next few weeks, he said. In answer to a question, he said the government had already received a tranche of $500 million from the Asian Development Bank (ADB) from a $1.5 billion loan negotiated with the bank several months back. That is all we are going to receive from the ADB this year unless it decides to extend another credit line, he said.
The government is facing a difficult balance of payments situation as the countrys foreign currency reserves have depleted to $8.135 billion including $3.45 billion held by the banks, from above $16.4 billion a year ago in spite of $500 million provided by the ADB last week.
The foreign capital inflows coming in the shape of loans, grant, investment, etc which were used by Islamabad to cover its ballooning current account gap, have either dried up or slowed down during the last one year fore a variety of reasons. As a consequence of this, the exchange rate is under immense stress and the rupee has hit the all-time low of 78.65/75 to a dollar in the inter-bank market on Tuesday.
Finance Minister Syed Naveed Qamar, however, sounds pretty much optimistic about the future. We are expecting $1 billion from the ADB and $1.2 billion from the World Bank, he told Dawn. But he wouldnt say when.
Foreign investors, particularly from the cash rich Gulf states, have also shown immense interest in the energy and financial sectors, he said of the possible impact of global financial turmoil on Pakistans efforts to attract foreign investment. Money stays in circulation. If it finds a market in turmoil and risky, it moves to safer shores, he added.
In reply to a question about the prospects of Pakistan issuing sovereign bonds in the international markets after the downgrade of its sovereign rating by the Standard & Poors, the minister said it would be difficult to issue state bonds at present. But, he said, we are proposing to float other instruments like securitization of remittances where the governments capacity to repay doesnt matter much. On those instruments we will get a better spread.
To another question about the Friends of Pakistan Group, he said the ADB and the World Bank were also interested in joining the forum launched in New York last month to help Pakistan cope with issues relating to terrorism, development, economic collapse, etc.
He acknowledged that Pakistan had not received any firm pledges of economic assistance at the forum from the participating countries. (The donors/lenders) dont always carry cheque books in their hands, he said and added: The forum is not an aid to Pakistan consortium; it is much wider than that though economic cooperation is also one of the points on its agenda.
By Nasir Jamal
Thursday, 09 Oct, 2008
LAHORE: Federal finance ministry officials shrug off reports of Pakistans possible default on its foreign obligation over the next several months as mere rumours. But they also dont see dollars flowing into the country any time soon.
This is all hot air, a senior finance ministry official, who requested anonymity, said of speculations that Pakistan could default on its foreign repayment obligation when they become due in February if it didnt receive immediate bilateral and multilateral assistance to shore up its foreign currency reserves.
The speculations about default got credence when the Standard & Poors downgraded Pakistans sovereign ratings to the junk category on Monday.
We have enough reserves to cover our expenditure and avoid any immediate possibility of default. Besides, we are expecting help from our friendly countries. Talks are already underway, the official, who has worked at important positions in the ministry during the last seven years, told Dawn.
But he did not say how much foreign assistance was the ministry expecting in the short to medium term, and when.
Islamabad is already sending a delegation to the United States for talks with the international finance institutions (IFIs) including the World Bank and the International Monetary Fund.
But another finance ministry official warned against attaching any hopes with the meeting. Its a routine meeting that has been set for October. It is not going to yield any dollars for Pakistan over the next few weeks, he said. In answer to a question, he said the government had already received a tranche of $500 million from the Asian Development Bank (ADB) from a $1.5 billion loan negotiated with the bank several months back. That is all we are going to receive from the ADB this year unless it decides to extend another credit line, he said.
The government is facing a difficult balance of payments situation as the countrys foreign currency reserves have depleted to $8.135 billion including $3.45 billion held by the banks, from above $16.4 billion a year ago in spite of $500 million provided by the ADB last week.
The foreign capital inflows coming in the shape of loans, grant, investment, etc which were used by Islamabad to cover its ballooning current account gap, have either dried up or slowed down during the last one year fore a variety of reasons. As a consequence of this, the exchange rate is under immense stress and the rupee has hit the all-time low of 78.65/75 to a dollar in the inter-bank market on Tuesday.
Finance Minister Syed Naveed Qamar, however, sounds pretty much optimistic about the future. We are expecting $1 billion from the ADB and $1.2 billion from the World Bank, he told Dawn. But he wouldnt say when.
Foreign investors, particularly from the cash rich Gulf states, have also shown immense interest in the energy and financial sectors, he said of the possible impact of global financial turmoil on Pakistans efforts to attract foreign investment. Money stays in circulation. If it finds a market in turmoil and risky, it moves to safer shores, he added.
In reply to a question about the prospects of Pakistan issuing sovereign bonds in the international markets after the downgrade of its sovereign rating by the Standard & Poors, the minister said it would be difficult to issue state bonds at present. But, he said, we are proposing to float other instruments like securitization of remittances where the governments capacity to repay doesnt matter much. On those instruments we will get a better spread.
To another question about the Friends of Pakistan Group, he said the ADB and the World Bank were also interested in joining the forum launched in New York last month to help Pakistan cope with issues relating to terrorism, development, economic collapse, etc.
He acknowledged that Pakistan had not received any firm pledges of economic assistance at the forum from the participating countries. (The donors/lenders) dont always carry cheque books in their hands, he said and added: The forum is not an aid to Pakistan consortium; it is much wider than that though economic cooperation is also one of the points on its agenda.
