Pakistan may soon be ineligible for World Bank loans

[Hulk]

ISLAMABAD:

In an emerging development, Pakistan may soon become ineligible for financial assistance from one of the two main arms of the World Bank Group – the International Bank for Reconstruction and Development (IBRD), as the country’s official foreign currency reserves are rapidly getting slimmer.


One of the key conditions for qualifying for IBRD loans is that the loan-seeking country should have official foreign currency reserves equivalent to three months of import bill.

Pakistan was touching that border line as its reserves stood at $14.3 billion on August 4, 2017.

These reserves include $3.9 billion in short-term borrowings by the central bank. By excluding the short-term forward contracts, the State Bank of Pakistan’s (SBP) net reserves will come down to $10.4 billion, according to the central bank data.



Sources in a multilateral lending agency and the Ministry of Finance told The Express Tribune that gross foreign currency reserves may slip below the threshold of three-month import cover either in the last week of August or the first week of September.

In order to rein in the declining reserves, the Ministry of Finance will have to immediately look for ways to ramp up the critical pool of foreign currency. Since the end of the International Monetary Fund’s (IMF) assistance programme 11 months ago, Pakistan’s official foreign currency reserves have dropped $4.2 billion.

Responding to the development, a spokesman for the Ministry of Finance said the SBP’s reserves totalled $14.398 billion on August 4, 2017, which were adequate for 3.2 months of imports.

He pointed out that an export package of Rs180 billion and improved global economic outlook had caused about 10.5% increase in exports in July 2017 compared to the same month of previous year. Apart from this, remittances from overseas Pakistanis have shown a healthy growth of 16% in July 2017.

As exports and remittances returned to the growth zone, the spokesman said, the government expected a significant increase in foreign direct investment and other inflows including official ones.

“With increased inflows together with expected reduction in non-essential imports due to the imposition of regulatory duty in the Finance Bill 2017, the SBP reserves are expected to strengthen in coming months,” he said.

Furthermore, the government was also working on more measures, which would be rolled out after finalisation, said the spokesman.

Ministry sources revealed that the government was reviewing different options to keep the reserves above the three-month import bill. These included incentives for expatriates to invest in Pakistani dollar-denominated bonds, more restrictions on imports and steps that will encourage exporters to bring back export proceeds.

IMF data bloats Pakistan forex reserves by $3bn

The last three-month (May-July) import bill of Pakistan stood at $14.5 billion, showed the data compiled by the Pakistan Bureau of Statistics.

In the previous fiscal year, Pakistan’s total imports swelled to a record $53 billion and keeping that in view, the three-month average imports came in at $13.3 billion.

The IBRD lending had been stopped for most of the tenure of the previous PPP government and the World Bank Group restored it less than two years ago. The IBRD suspension carries implications for both project and programme financing.

The IBRD financing is relatively expensive and is usually linked with changes in the recipient country’s economic and financial policies.

The World Bank Group comprises five institutions. Its two arms – the IBRD and International Development Association (IDA) – give loans to governments.

The IBRD offers loans for projects, programmes or policy purpose as well as hedging products to help manage the currency and interest rate risk exposures.

IDA is a concessionary lending window that extends funds to the poorest developing countries.

In case, Pakistan is disqualified, its borrowing from the World Bank Group will be limited to the IDA, from where it can borrow only according to the quota.

Pakistan is among the few countries that qualify for both the IDA and IBRD assistance due to its creditworthiness.

Sources said if the World Bank stopped Pakistan from IBRD borrowing, it would also have implications for the country’s creditworthiness. Lenders define creditworthiness as “the ability to service new external debt at market interest rates over the long term”.

The World Bank has already declined to give policy loans to Pakistan until it depreciates the rupee against the US dollar. The bank’s decision reflected deterioration in the country’s external sector that was posing challenges to macroeconomic stability.

However, the Ministry of Finance insisted that dialogue with the bank for policy lending was under way and the exchange rate policy did not fall within the bank’s domain.

Published in The Express Tribune, August 15th, 2017.

Dude this article is bullshit as @RiazHaq he will tell you how world bank will ask loan from Pakistan.

Once Pakistan becomes a province of China the CCP will have plenty of money to bail it out.

No need for @stephen Colbert to worry.

That will not happen. China will not accept radical Pakistan and Pakistan cannot leave radicalism.

 

[StraightShooter]

Excellent news for China to fund more projects in Pakistan.

Finally, China has $3 Trillion reserves while Pakistan's external debt is just $75 billion. Most of that $75 billion is towards China and China would easily payoff the the remaining amount of non-Chinese debts of Pakistan like it did in the past.

China bails out Pakistan with over $1bn in loans
Kiran Stacey, Farhan Bokhari & Henny Sender
Published 12:32 PM ET Tue, 25 April 2017 | Updated 1:13 PM ET Tue, 25 April 2017Financial Times

Aamir Quershi | AFP | Getty Images
A Chinese worker stands near trucks carrying goods during the opening of a trade project in Gwadar port, some 700 kms west of the Pakistani city of Karachi on November 13, 2016.
China has deepened its economic pull over its neighbour Pakistan over the past year, providing over $1bn in loans to help the South Asian country stave off a potential currency crisis.

State-backed Chinese banks have come to the nuclear-armed state's rescue on two separate occasions, officials have told the Financial Times, with $900m coming in 2016, followed by another $300m in the first three months of this year.

The loans demonstrate the perilous fragility of Pakistan's stocks of foreign currency, which have been depleted in the past few months as imports have risen while both exports and inbound remittances from Pakistanis abroad have fallen.

Beijing's financial help also underlines the increasingly close relationship between the two Asian neighbours amid strains between Pakistan and the US.

Beijing is preparing to invest at least $52bn in Pakistan to build a highway, energy pipelines, power generation and industrial parks from the western port of Gwadar on the Gulf to the Chinese border 3,000km to the north.

But despite its expected impact on Pakistan's competitiveness, the infrastructure project — named the China-Pakistan Economic Corridor — is set to further deplete the country's stocks of foreign currency, needed to pay the contractors and suppliers.

Figures from the State Bank of Pakistan show the country had $17.1bn of net reserves at the end of February, down from $18.9bn at the end of October and a peak of $25bn several years ago.

This has forced the country to seek emergency loans from outside sources to repay older loans made in foreign currencies.

Of the $1.2bn from the Chinese institutions, $600m came from the government-run China Development Bank and another $600m from the state-owned Industrial and Commercial Bank of China, the only mainland bank to have a branch in Pakistan. Policy banks such as CDB often act on behalf of the central bank.

One Pakistani official said: "China keeps a very close eye on our economic trends and they're happy to come to our help wherever needed."

But experts are also warning that Pakistan is likely to have to return to international institutions such as the IMF, to which it sought recourse in 2013, for further support.

"Technically speaking we should have gone back to the IMF in January, but ministers are likely to try and wait until after the election [for parliament planned for 2018]," said Vaqar Ahmed, deputy executive director of the Islamabad-based Sustainable Development Policy Institute.

One member of the ruling PML-N party confirmed to the Financial Times that ministers were loath to return to the IMF until after the election in an effort to limit the political fallout."

The IMF is a politically volatile issue in our country. If we go to the IMF to deal with our needs, that will send a very negative political signal and the opposition [parties] will use that against the government," the person said.

It was only last year that the country completed repaying the IMF debt incurred in 2013, a repayment that led policymakers in Pakistan and abroad to express optimism that the country was finally on the path to economic stability.

Christine Lagarde, the head of the IMF, called it a "moment of opportunity" for the country.


https://www.cnbc.com/2017/04/25/china-bails-out-pakistan-with-over-1bn-in-loans.html

 

[VCheng]

I also think this would be a good thing in the long run. I agree that initially it will be painful but there is no gain without pain.

My reasons are that Pakistan is already under tremendous burden of debt and the people in power just keep going for more loans in the name of development funds and then they make deals with other countries that are not beneficial for Pakistan, the 15 years deal with Qatar for LNG terminal is a perfect example where the govt took a loan for a project that was not needed and then made a deal with Qatar for which Pakistan pays a huge daily fee for everyday that no work is done at the terminal.

Now if there are no venues for these incompetent leaders to get more loans then they would not be able to make anymore shady deals or atleast it will be much harder for them to make such deals.

But on the other hand i don't think that WB will stop giving loans, call me a conspiracy theorist but the fact is that the banks like to control countries by keeping them under debt and i don't think they would stop doing that anytime soon.

You were doing so well with your reply, until the last paragraph.

Why is it so hard for people to accept that going to WB is not a conspiracy by some hidden evildoers, but a free choice made by a country to seek loans for helping its own economy? Furthermore, when has WB or IMF ever prevented any country from being debt-free? If the economy is doing well, loans can be paid off easily.

 

[Clutch]

Excellent news... a blessing in disguise... hopefully IMF also puts us on that ineligibility list.

 

[DavidSling]

Excellent news for China to fund more projects in Pakistan.

Finally, China has $3 Trillion reserves while Pakistan's external debt is just $75 billion. Most of that $75 billion is towards China and China would easily payoff the the remaining amount of non-Chinese debts of Pakistan like it did in the past.

China bails out Pakistan with over $1bn in loans
Kiran Stacey, Farhan Bokhari & Henny Sender
Published 12:32 PM ET Tue, 25 April 2017 | Updated 1:13 PM ET Tue, 25 April 2017Financial Times

Aamir Quershi | AFP | Getty Images
A Chinese worker stands near trucks carrying goods during the opening of a trade project in Gwadar port, some 700 kms west of the Pakistani city of Karachi on November 13, 2016.
China has deepened its economic pull over its neighbour Pakistan over the past year, providing over $1bn in loans to help the South Asian country stave off a potential currency crisis.

State-backed Chinese banks have come to the nuclear-armed state's rescue on two separate occasions, officials have told the Financial Times, with $900m coming in 2016, followed by another $300m in the first three months of this year.

The loans demonstrate the perilous fragility of Pakistan's stocks of foreign currency, which have been depleted in the past few months as imports have risen while both exports and inbound remittances from Pakistanis abroad have fallen.

Beijing's financial help also underlines the increasingly close relationship between the two Asian neighbours amid strains between Pakistan and the US.

Beijing is preparing to invest at least $52bn in Pakistan to build a highway, energy pipelines, power generation and industrial parks from the western port of Gwadar on the Gulf to the Chinese border 3,000km to the north.

But despite its expected impact on Pakistan's competitiveness, the infrastructure project — named the China-Pakistan Economic Corridor — is set to further deplete the country's stocks of foreign currency, needed to pay the contractors and suppliers.

Figures from the State Bank of Pakistan show the country had $17.1bn of net reserves at the end of February, down from $18.9bn at the end of October and a peak of $25bn several years ago.

This has forced the country to seek emergency loans from outside sources to repay older loans made in foreign currencies.

Of the $1.2bn from the Chinese institutions, $600m came from the government-run China Development Bank and another $600m from the state-owned Industrial and Commercial Bank of China, the only mainland bank to have a branch in Pakistan. Policy banks such as CDB often act on behalf of the central bank.

One Pakistani official said: "China keeps a very close eye on our economic trends and they're happy to come to our help wherever needed."

But experts are also warning that Pakistan is likely to have to return to international institutions such as the IMF, to which it sought recourse in 2013, for further support.

"Technically speaking we should have gone back to the IMF in January, but ministers are likely to try and wait until after the election [for parliament planned for 2018]," said Vaqar Ahmed, deputy executive director of the Islamabad-based Sustainable Development Policy Institute.

One member of the ruling PML-N party confirmed to the Financial Times that ministers were loath to return to the IMF until after the election in an effort to limit the political fallout."

The IMF is a politically volatile issue in our country. If we go to the IMF to deal with our needs, that will send a very negative political signal and the opposition [parties] will use that against the government," the person said.

It was only last year that the country completed repaying the IMF debt incurred in 2013, a repayment that led policymakers in Pakistan and abroad to express optimism that the country was finally on the path to economic stability.

Christine Lagarde, the head of the IMF, called it a "moment of opportunity" for the country.


https://www.cnbc.com/2017/04/25/china-bails-out-pakistan-with-over-1bn-in-loans.html

Seems even economical aid can't help Pakistan become a prosperous country

 

[American Pakistani]

Great news, now the politicians cannot loot the caountry.

 

[Imad.Khan]

You were doing so great with your reply, until the last paragraph.

Why is it so hard for people to accept that going to WB is not a conspiracy by some hidden evildoers, but a free choice made by a country to seek loans for helping its own economy? Furthermore, when has WB or IMF ever prevented any country from being debt-free? If the economy is doing well, loans can be paid off easily.

The reason for my last parra was that lately i saw a couple of documentaries on Rothschild

As for the rest you and I both know that we (the common people) have no control/choice in stopping the so-called elected people from getting more loans which we may or may not need

 

[StraightShooter]

Seems even economical aid can't help Pakistan become a prosperous country

Pakistan's external debt is expected to touch $110 Billion and I foresee all that debt to be with China as Pakistan is moving away from WB & IMF and started to rely more and more on China. This gives China complete veto over Pakistan's foreign and strategic policy starting with Chinese Naval base in Gwadar.


Pakistan's external debt to grow to USD 110 billion in next four years, warn experts
ANI | Islamabad [Pakistan] February 3, 2017 Last Updated at 18:22 IST


America considers Pakistan as 'important partner': U.S. envoyJaitley not to attend SAARC Finance Ministers' conference in PakistanPakistan to repay $500 mn loan to China: MinisterPakistani Finance Ministry dispels demonetisation reportsU.S. initiates process to resolve India-Pak Indus water dispute


Pakistan's overall economic situation was targeted in the critical analysis from independent experts and availed prominent coverage in media. Federal Finance Minister Ishaq Dar, however, vehemently denied their comments as miscalculation and wrote a detailed article to put the record straight.

According to these experts, the external debt of Pakistan is projected to grow to USD 110 billion within four years and it will need over USD 22 billion a year just to meet external payment requirements, economists said.



It will pose a serious threat to the country's solvency forcing Pakistan to go back to the International Monetary Fund (IMF) to avoid default on international payments as it did in 2013, independent projections by two renowned economists revealed, at the recently held National Debt Conference, as reported by The Nation

Former director general debt Dr Ashfaque Hasan Khan in his external debt assessment said that the USD 110-billion external debt level by 2019-20 will be USD 24 billion higher than the projections made by the IMF in its latest report on Pakistan.

He shared his assessment at the debt conference, arranged by the Policy Research Institute of Market Economy (PRIME). He updated his previous external debt forecast for fiscal year 2018-19 from USD 90 billion to USD 98 billion after the government borrowed heavily in the past one year.

The external debt presently stands at USD 73 billion, which has been projected to swell by 50 percent to USD 110 billion in just four years. According to the economist no major change is expected in Pakistan's export situation and it is anticipated that by 2019-20, the exports would stand roughly at USD 25 billion, a level that the country crossed in the last year of the previous Government.

The PML-N Government has been heavily borrowing to finance its expenditures as it remains unable to mobilise domestic resources. The 66.5 percent ratio was 3.3 percent higher than the previous year. The public debt-to-government revenue ratio stood at 442.5 percent against the generally acceptable threshold of 350 percent.

The government also could not increase revenues and its receipts were not sufficient to finance the current expenditures. The revenue deficit - total revenues minus current expenses - was recorded at 0.7 percent of GDP in 2015-16. However, this was better than the previous year and the trend was positive. Total public debt stood at Rs. 20.6 trillion at the end of September 2016, an increase of Rs. 3.15 trillion since June 2015.

Meanwhile, the Debt Policy Statement has revealed that Pakistan's external debt-bearing capacity slightly weakened last year as the country's stock of external debt increased rapidly compared to its foreign exchange earnings.

The government presented the Debt Policy Statement 2016-17 on Monday in the National Assembly, which was the first statement after the introduction of sweeping changes in the Fiscal Responsibility and Debt Limitation (FRDL) Act of 2005 in June last year.

Economists had criticised these amendments, arguing that they were aimed at deflecting attention from the growing public debt.

Headed by its Director General Ehtesham Rashid, the Debt Policy Coordination Office prepared the statement in the light of the FRDL Act aimed at reviewing the government's management of public debt and liabilities.

The external debt-to-foreign exchange earnings ratio increased to 1.1 times, showing that Pakistan's debt-bearing capacity weakened by the end of the last fiscal year.

Total external debt and liabilities rose 14.6 percent to USD 74.6 billion by September last year, according to the statement. The external debt and liabilities were at USD 61.4 billion in June 2015. In the external debt, the public debt rose to USD 58.7 billion.

There were certain areas where the government showed improvement. The external debt-to-foreign exchange reserves ratio slightly declined to 2.5 times, reflecting the positive impact of increase in the foreign currency reserves.

However, these reserves were not increased through non-debt creating instruments like foreign direct investment and exports. Instead, the government borrowed to push up the reserves.

There was also slight improvement in the external debt servicing-to-foreign exchange earnings ratio due to a decline in foreign debt repayments, largely because of repayment of the previous IMF loan. Going forward, the debt office has predicted that there will be limited pressure from external debt repayments in the medium term. It has projected limited pressure till fiscal year 2020-21.

Before the amendments in the FRDL law, the Government was bound to keep the public debt below 60 percent of the total size of national economy and its revenues should be sufficient to finance at least current expenditures.

However, despite the gross public debt-to-GDP ratio at 66.5 percent in the last fiscal year, the Government was not in violation of the law, thanks to the amendments.

For a developing country like Pakistan, a debt-to-GDP ratio below 50 percent is considered sustainable. Anything above this threshold is counted as dangerous in the long term, according to economists.

(This story has not been edited by Business Standard staff and is auto-generated from a syndicated feed.)

http://www.business-standard.com/ar...t-four-years-warn-experts-117020300875_1.html

 

[Thəorətic Muslim]

That will not happen. China will not accept radical Pakistan and Pakistan cannot leave radicalism.

 

[Hulk]

Calm down, I know your dream is shattered.

 

[Thəorətic Muslim]

Seems even economical aid can't help Pakistan become a prosperous country

Economic Aid is bullsh!t ask any economist.

Real help comes in the form of trade, the Marshall Plan at it's core wasn't just economic aid to war ravaged Europe.

^That and until Pakistan gets serious about taxation. Not on the little guy or through indirect but direct and forceful on corporations and individuals.

 

[Kabira]

I also think this would be a good thing in the long run. I agree that initially it will be painful but there is no gain without pain.

My reasons are that Pakistan is already under tremendous burden of debt and the people in power just keep going for more loans in the name of development funds and then they make deals with other countries that are not beneficial for Pakistan, the 15 years deal with Qatar for LNG terminal is a perfect example where the govt took a loan for a project that was not needed and then made a deal with Qatar for which Pakistan pays a huge daily fee for everyday that no work is done at the terminal.

Now if there are no venues for these incompetent leaders to get more loans then they would not be able to make anymore shady deals or atleast it will be much harder for them to make such deals.

But on the other hand i don't think that WB will stop giving loans, call me a conspiracy theorist but the fact is that the banks like to control countries by keeping them under debt and i don't think they would stop doing that anytime soon.

Pakistan now likely doesn't need WB loans for development projects with CPEC. Now instead of paying to WB, Pak will pay to China in coming years.

LNG is great. It was first deal and now that Pakistan have proved that it can import and pay for LNG other companies are coming with bit cheaper offers then Qatar one.

But first step is always more difficult and that's what make Qatar deal fair as they toke the risk which no one else wanted. Plan to import LNG was started in 2006 but for 10 years nothing was happening, give credit where its due.

 

[Thəorətic Muslim]

Calm down, I know your dream is shattered.

Mera dil tordia tum nay. (really hope that's correct)

LNG is great. It was first deal and now that Pakistan have proved that it can import and pay for LNG other companies are coming with bit cheaper offers then Qatar one.
But first step is always more difficult and that's what make Qatar deal fair as they toke the risk which no one else wanted. Plan to import LNG was started in 2006 but for 10 years nothing was happening, give credit where its due.

The real reason companies and countries were staying away was the history of Pakistan in backing out of deals. There's no political or economic will for Pakistan to diversity from Saudi.

Depending on how the Panama Papers and Gulf blockade on Qatar goes, i'd expect the LNG deal to go the way that Balochistan mining contract went.

 

[Imad.Khan]

Pakistan now likely doesn't need WB loans for development projects with CPEC. Now instead of paying to WB, Pak will pay to China in coming years.

LNG is great. It was first deal and now that Pakistan have proved that it can import and pay for LNG other companies are coming with bit cheaper offers then Qatar one.

But first step is always more difficult and that's what make Qatar deal fair as they toke the risk which no one else wanted. Plan to import LNG was started in 2006 but for 10 years nothing was happening, give credit where its due.

From the info i have i disagree with you. First why make a deal for 15 yrs, secondly why agree to pay a fee to a company when there is no activity taking place. Secondly Iran was ready to sell Natural gas to Pakistan and they have already completed the pipeline on their side. We already have CNG stations all across the country, we could have used the Natural gas more efficiently. Also can you guess who is the owner of the company that is running the LNG terminal in Pakistan? let me give you a few hints,

1. He is a Qatari
2. He is also a Prince
3. His name is also in Panama Papers
4. His letters have recently made him a house-hold name in Pakistan.

 

[Kabira]

From the info i have i disagree with you. First why make a deal for 15 yrs, secondly why agree to pay a fee to a company when there is no activity taking place. Secondly Iran was ready to sell Natural gas to Pakistan and they have already completed the pipeline on their side. We already have CNG stations all across the country, we could have used the Natural gas more efficiently. Also can you guess who is the owner of the company that is running the LNG terminal in Pakistan? let me give you a few hints,

1. He is a Qatari
2. He is also a Prince
3. His name is also in Panama Papers
4. His letters have recently made him a house-hold name in Pakistan.

15 years deal is standard. Iran is under sanctions, Pakistan can't import gas till sanctions are removed. Even India backed out of IPI while agreed to import gas through TAPI.

There maybe some kick back involved but before Qatar deal no one was coming forward. Just like no one will invest in Pakistan mining sector apart from China because of our glorious record of treating foreign investors with disdain. Let's be brutally honest here, Pakistan doesn't have much options on table. Till we get out of this fucked up phase of instability. For a start stop sending elected PM to home over laws which can disqualify all 1100 law makers in country.

GCC and China come because relations are backed by establishment, so our courts and laws don't matter to them. Investors from rest of the world don't enjoy same privileges. They look at overall situation before investing their money.