KARACHI: As the PDM government keeps struggling to secure $1.1 billion from the International Monetary Fund (IMF), the country lost $7.15bn on account of shrinking exports and remittances during the first 11 months of FY23.

Despite missing out on targets for the outgoing fiscal year, the government has fixed higher exports and remittances projections for FY24.

Exports plunged by $3.491bn, or 12 per cent, to $25.380bn during July-May of FY23 compared to $28.871bn in the same period of the last year, official data showed.

Similarly, remittances fell by 12.8pc to $24.831bn during the first 11 months of the current fiscal year, posting a net loss of $3.658bn.

The combined loss from these two sectors is much higher than the country is willing to receive from the IMF and borrow from commercial banks and other multilateral lending agencies.

Combined losses surpass funding option; govt focuses on borrowing strategy

“Instead of spending time to boost exports and remittances, the government remained busy with all its efforts to borrow from the IMF and other sources,” said a senior banker.

The government struggled hard to get assurances of $3bn from Saudi Arabia and $2bn from the United Arab Emirates to get IMF’s $1.1bn.

Financial experts believe that the policymakers lack a clear strategy to control the situation, as most of the time was spent on borrowing strategy.

At the same time, the government included certain unrealistic expectations to bolster exports and remittances in the upcoming FY24 budget, without providing the rationale behind them. Analysts and experts said the new fiscal year would start under the stress of a current account deficit that has been projected at $6bn for FY23. The government has also allocated a budget of $6bn CAD, which analysts believe will likely increase due to the continuing decline in remittances.

“The government has also budgeted a $6bn CAD, which analysts believe will increase due to the continuing decline in remittances. But even taking the government figures, they imply a deficit of $300m to $700m every month,” said Faisal Mamsa, CEO of Tresmark, the company that tracks currency trends worldwide.

If the June 30 deadline for the IMF loan agreement (total worth $7bn) expires, the situation will become even more challenging for the new fiscal year.

Under the new FY24 budget, the government has projected a 7.2pc growth in exports. However, this projection is far from reality, as there is no improvement in Pakistan’s exports and the slowdown in world trade is not expected to improve in the next 12 months.

Remittances, which have been declining by an average of $332m per month, have been projected to grow by 8.5pc. However, remittances are declining due to a government policy that permits importers to purchase dollars from the illegal grey market for imports.

The grey market offers a rate of Rs20 to Rs25 per dollar higher than the official banking rate. Remitters are benefitting from these grey market transactions and this situation is expected to persist into the next fiscal year, resulting in a decline in remittances instead of the projected 8.5pc growth.

During the first 10 months of FY23, Pakistan received only $1.1bn as Foreign Direct Investment. However, the government anticipates receiving $2.8bn in FY24 without providing any justification for this projected growth.

Published in Dawn, June 18th, 2023