Pakistan incurred a huge USD 8.3 billion loss in remittances and exports during the previous fiscal year as the Pakistan Muslim League-Nawaz (PML-N)-led coalition government chose to appease the International Monetary Fund (IMF) for a USD 1.2 billion tranche.
Due to a lack of attention to these two big inflows, Pakistan lost considerably more than it received from IMF borrowings and inflows from other sources.
Pakistan received a nine-month USD 3 billion loan package for FY24 in exchange for a massive tax burden, historically high-interest rates, and record inflation and currency depreciation in FY23.
The remittances declined by 13.6 pc to USD 27.024 bn against USD 31.278 bn in FY22, a loss of USD 4.252 bn.
Interest-free inflows are falling as the government stays focused on IMF financing. Inflows from abroad Pakistanis fell even lower than the USD 29.449 billion received by the government in FY21, after increasing by a record USD 6.317 billion above the USD 23.132 billion received in FY20.
The growth trajectory has been lost in FY23 despite over a million Pakistanis leaving the country for jobs mainly in the Middle East.
The inflows could be much higher due to the increased number of overseas Pakistani workers. Still, they fell mainly due to the political and economic crisis which dominated the entire fiscal year creating uncertainties for all stakeholders including the overseas Pakistanis, Dawn reported.
“Despite the month-to-month decline in the remittances, the government remained busy with the IMF for loans while it has been losing interest-free inflows without any strings. Attention was needed to address the declining trend but it looks borrowing was more important,” said Atif Ahmed, a currency dealer and expert in the interbank market.
At the same time, the exports started declining and finally ended with a decline of 12.7 pc to USD 27.74 bn compared to USD 31.78 bn last year, a net loss of USD 4.04 bn, Dawn reported.
The twin declines resulted in a net cumulative loss of USD 8.294 bn. The amount is almost equal to 30pc of the exports recorded in FY23.
The State Bank of Pakistan reported collective inflows of USD 4.2 bn from IMF, Saudi Arabia and UAE this month. Pakistan hopes to get more borrowed dollars in the coming weeks and months after IMF’s support but the loss of USD 8.3 bn is still higher.
This was why many analysts believed the IMF loan would no longer positively impact the economy, including the exchange rate.
“A fresh inflow of USD 4.2bn has significantly lifted sentiment. IMF’s programme was one of a kind, custom-made to fit Pakistan’s current needs and assisted with a political nudge to get this far. This shows how US and Gulf states consider Pakistan to be geopolitically too important and too big to fail,” said Faisal Mamsa, CEO of Tresmark and a financial expert.
“While the improved reserves are being cheered at, the backlog of payments (imports, profit repatriation, etc) estimated to be around USD 6bn, will not allow the rupee to strengthen above its current levels,” he said.
The dollar appreciated against PKR in the interbank market in the last session of Friday reflecting the fading impact of IMF’s support, Dawn reported.
Mamsa said if inflation stays elevated, interest rates may not go down any time soon. The IMF predicts 25 pc inflation for FY24.