©Reuters. FILE PHOTO: Pakistan’s new Finance Ministry chief Miftah Ismail speaks with a Reuters correspondent during an interview in Islamabad, Pakistan December 28, 2017. Picture taken December 28, 2017. REUTERS/Faisal Mahmood
By Gibran Naiyyar Peshimam
ISLAMABAD (Reuters) – Pakistan will “absolutely not” default on debt obligations despite catastrophic floods, the finance minister said on Sunday, signaling there would be no major divergence from reforms aimed at stabilizing an ailing economy.
Floods have hit 33 million Pakistanis, caused billions of dollars in damage and killed over 1,500 people – raising concerns Pakistan will default on its debt.
“The road to stability has been and has become narrower given the challenging environment,” Finance Minister Miftah Ismail told Reuters in his office.
“But if we continue to make prudent decisions – and we will – then we will not default. Absolutely not.”
Pakistan was able to get an International Monetary Fund (IMF) program back on track after months of delay thanks to tough political decisions. But the upbeat sentiment was short-lived before the disastrous rains hit.
Despite the disaster, Ismail said most stabilization measures and targets are still on track, including increasingly dwindling foreign exchange reserves.
Central bank reserves stand at $8.6 billion, despite the inflow of $1.12 billion in IMF funds at the end of August, enough for only about a month of imports. The goal at the end of the year was to increase the buffer to 2.2 months.
He said Pakistan will still be able to increase reserves by up to $4 billion even if the floods hit the current account by $4 billion through more imports such as cotton and a negative impact on exports.
However, he estimated that the current account deficit would not widen by more than $2 billion after the floods.
“Yes, there have been significant losses for the very poorest of people and their lives will never be whole again. But in terms of servicing our foreign and local debt and micro-macro stability, those things are under control.”
TO MEET DECEMBER PAYMENT
He said global markets were “nervous” about Pakistan’s economy suffering at least $18 billion in losses, which could be as high as $30 billion, following the floods.
“Yes, our credit risk has increased, our bond prices have fallen. But … I think within 15 to 20 days the market will normalize and I think we will understand that Pakistan has pledged to be cautious.”
Pakistan’s next big payment – $1 billion in international bonds – is due in December, and Ismail said the payment would be made “absolutely”.
The IMF said Sunday it would work with the international community to support Pakistan’s relief and reconstruction efforts and efforts to ensure sustainability and stability.
Ismail said external funding sources have been secured, including over $4 billion from the Asian Development Bank (ADB), the Asian Infrastructure Investment Bank and the World Bank.
That includes $1.5 billion from the ADB next month under the countercyclical support facility — a budget support instrument.
The minister also said that about $5 billion in investments would come in the current fiscal year from Qatar, the UAE and Saudi Arabia.
The three expressed interest in investing in Pakistan earlier this year, but no timelines or exact plans have yet been reported.
He said US$1 billion in investments in the UAE “will definitely materialize” in the next few months in the form of purchases on the Pakistan Stock Exchange.
About $3 billion in investment commitments from Qatar will all come in within the fiscal year ending June 2023, he added.
“They are reviewing the three airports in Pakistan, Karachi, Lahore and Islamabad … long-term leases. They are also looking at buying two plants that will run on LNG (liquefied)…which I think will likely happen this calendar year,” he said.
He said if the $3 billion figure wasn’t reached by the fiscal year-end, the remaining amount would go public.
He also said the Crown Prince of Saudi Arabia had assured Prime Minister Shehbaz Sharif that Riyadh would invest $1 billion by December.
The Central Bank of Pakistan said on Sunday that Saudi Arabia’s development agency had also extended a $3 billion deposit maturing in December by a year.
He said a legal instrument would soon be signed with a “friendly country” to activate a deferred $1 billion oil payment facility.