Aurangzeb predicted a $10b reserve with IMF approval

Aurangzeb predicted a $10b reserve with IMF approval

Finance Minister Muhammad Aurangzeb said on Tuesday that Pakistan’s official foreign exchange reserves will rise to $10 billion in two months, as the International Monetary Fund is set to approve a final loan level of $1.1 billion on Monday.

The minister also revealed his strategy to avoid any future International Monetary Fund (IMF) program but only after securing a “larger and longer” 24th program. His strategy revolves around increasing exports, foreign direct investment (FDI), and raising debt from global markets – three pillars that every finance minister has tried to implement over the past 16 years with varying degrees of success.

The finance minister also hit out at his predecessor, stating that “no one can imagine a plan B with only 15 days of reserves” – in a veiled reference to former Finance Minister Ishaq Dar’s mention of a Plan B in 2023 when the country was struggling. to get the IMF bailout package.

Aurangzeb was speaking at the inaugural session of the 7th Edition of “Leaders in Islamabad Business Summit” (LIIBS).

This edition of the summit was jointly organized by Nutshell Group and Unity Foods Limited, in collaboration with OICCI (Overseas Investors Chamber of Commerce and Industry), with Faysal Bank Limited as Platinum partner, and InfraZamin Pakistan as strategic partner. The theme of this year’s event is ‘Collaborating for Growth.’

Aurangzeb stated that the $3 billion Self-Standing Arrangement (SBA) was very critical for Pakistan, and the IMF has now praised the country for successfully completing the program.

The fund has already disbursed $1.9 billion under the SBA, and its executive board is set to approve the final loan level of $1.1 billion on April 29, according to Finance Ministry officials.

Aurangzeb mentioned that the final level of loans is expected to be released next week, and the country is also expected to get more inflows in June. This will help increase foreign exchange reserves to $10 billion, he added.

Reserves currently held by the central bank are just over $8 billion. The main reason for maintaining reserves at current levels is the massive purchase of US dollars from the local market by the State Bank of Pakistan, according to central bank sources.

They noted that purchases from the market have already exceeded the size of the current IMF program.

While the massive purchases have helped maintain foreign exchange reserves at the current level of $8 billion, they have also contributed to keeping the rupee-dollar price higher at Rs279 to a dollar.

The finance minister mentioned that an IMF mission will visit Pakistan in mid-May to negotiate the new agreement.

However, he noted that the size and duration of the program is unknown at this stage. He hopes to reach a staff-level agreement in late June or early July.

The minister stated, “We had very good discussions with the IMF in Washington, with the view that we go to a bigger and longer program. We will start discussions on the contours of the program when the IMF mission visits Pakistan in mid-May, and we hope that if everything goes well, and we agree on privatization, we can reach a staff-level agreement at the end. June or early July, so we can go ahead with it.”

He mentioned that the new IMF program is needed to bring economic stability and the implementation of structural reforms.

Aurangzeb highlighted three areas for future IMF programs, including increasing the tax-to-GDP ratio and broadening the tax base, fixing the energy sector and accelerating the privatization program.

The federal minister stated that the government intends to bring the untaxed and undertaxed sector into the net, which it will work with the provinces. “So that we start moving towards a 13-14% tax to GDP, a more sustainable range, in the next 3-4 years.”

He noted that the textile and information technology sectors are critical to increasing the country’s exports. He hopes interest rates will go down following the slowdown in inflation.

The finance minister mentioned that during the meeting between Crown Prince Mohammed Bin Salman and Prime Minister Shehbaz Sharif, Saudi Arabia expressed its desire for a $5 billion investment in Pakistan. “Now it’s up to us to offer them bankable projects to bring in $5 billion in investment,” he added.

The Minister hopes that the country will be able to attract new foreign commercial loans from the next fiscal year, as the rating agencies are looking for the sustainability of the current economic stability.

“A road map we are exports, FDI, and debt to take the country forward,” Aurangzeb said.

It is unusual that external debt is made part of the strategy for the economic well-being of any country.

The finance minister stated that the privatization of Pakistan In international airlines are running. “The Expression of Interest for the privatization of PIA has been submitted, and we expect bids to come in,” he said. “We also see interest in Islamabad Airport, but the government wants to speed up the privatization agenda as we proceed,” he said.

He mentioned that the economic situation showed improvement. “There is a primary budget surplus, and the country also had a current account surplus of $619 million last month,” Aurangzeb said.

While welcoming delegates to the summit, former Minister of Investment, Muhammad Azfar Ahsan emphasized the need for cooperation between the private, public and military sectors. “Pakistan is at a crossroads, but I am optimistic that the financial team under the dynamic leadership of Finance Minister Muhammad Aurangzeb will work together and do the needful. To progress as a nation, we need competent teams in four key stakeholder domains: political government, bureaucracy, business leadership and the business community.