Finance Minister Miftah Ismail on Wednesday linked the prevailing political uncertainty to the ongoing depreciation of the rupee against the U.S. dollar, adding that another key factor was the dollar’s appreciation against all major currencies in recent weeks.
Addressing a press conference, he said the rupee had appreciated against the British pound, the euro, and the Japanese yen even as it had slid against the dollar. This, he stressed, was due to the dollar reporting a 22-year high surge due to actions taken by Washington to combat inflation.
Admitting that the country’s prevailing political situation was one reason for the rupee depreciation, he cited the State Bank of Pakistan (SBP) in saying that, factoring in inflation, the rupee had depreciated by just 3 percent since December in terms of real effective exchange rate.
Seeking to assuage persistent concerns of Pakistan heading toward default, he said the economy was overall performing well. Summarizing some recent indicators, he said revenue collection had been recorded at Rs. 751 billion in June, a 30 percent increase over the previous month, adding the government had paid Rs. 40 billion in rebates and Rs. 35 billion to exporters during this time. The government, he maintained has taken result-oriented measures to level imports with exports and remittances.
“We are trying to bring imports almost equal to exports and remittances because we do not have the space in foreign exchange reserves to reduce these,” he said. “So we want to strike a balance between imports, exports and remittances,” he said, adding that the government’s efforts to reduce the country’s import bill were becoming evident, as the non-energy import bill had reduced by 15 percent in June. However, he said, energy imports had increased due to international prices and the bill for them had surged by 120% in June. Overall, he said, Pakistan imported $7.4 billion worth of goods last month, including $3.7 billion for energy and $3.7 billion for other items.
Detailing the steps taken to reduce the import bill, he said this had been achieved through lower margins for letters of credit; and bans on importing assembled vehicles and mobile phones. Till July 18, he said, the government had recorded $2.609 billion in imports, indicating the month’s figure would come under $5.5 billion, a nearly $2 billion reduction from last month’s bill. This would, he claimed, inevitably also result in a reduction to the current account deficit.
Pakistan reported a $48 billion trade deficit in the last fiscal year, said Ismail, alongside an “unsustainable” $17 billion current account deficit. He claimed many dealers had hoarded fuel when it was being sold with a subsidy, adding the country currently had sufficient stock for 60 days of diesel. This, he hoped, would lead to less import demand and reduce energy imports. A reduction of fuel prices in the international market would also have a positive impact on reducing imports, he added.
The minister claimed that these figures showed that the economic fundamentals of trade had been corrected and imports were now almost equal to remittances and exports. The minimal CAD remaining, he said, could be financed.
On Pakistan’s pending bailout program with the International Monetary Fund (IMF), he said it was on track and would not be hampered as Islamabad had already met all prior actions required. Once the latest tranche is approved by the Executive Board, he said, Pakistan would be able to seek additional financing from the World Bank and the Asian Development Bank.
The finance minister said the IMF had expressed concern over a $4 billion funding gap in the budget for the ongoing fiscal, but stressed that this would be addressed by seeking funding and deferred payments from friendly nations. He claimed that one “friendly country” had offered $1.2 in oil financing, which would be finalized soon, while another had pledged to invest $1-2 billion in the Pakistan Stock Exchange. A third country, he claimed, had promised $200-300 million gas on deferred payments, while a fourth had offered $2 billion deposits and a fifth 2 billion SDRS.
Ismail emphasized that the government hoped to enhance the tax-to-GDP ratio in addition to reducing the budget deficit within a few months. In this regard, he said, the government had incentivized the agriculture sector to enhance wheat production and had also purchased 5 million tons of wheat and allowed import of 3 million tons more to build strategic reserves. Similarly, he said, 0.2 million tons of urea had been imported. To a question, he said a decision on whether or not to allow the export of “excess” sugar would be taken after consulting the Sugar Advisory Board.