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Pakistan has decided to seek a rollover of around $12 billion debt from key allies such as China in the 2024-25 fiscal year to meet a whopping $23 billion worth of gap in its external financing as the federal government aims to achieve budget targets before the expected arrival of an IMF team to the cash-strapped country.

According to the Finance Ministry insiders, $5 billion from Saudi Arabia, $3 billion from the UAE and $4 billion from China will be rolled over, adding that the estimate of further new financing from China would also be included in the next financial year’s budget, The Express Tribune newspaper reported.

Pakistan will receive more than $1 billion from the International Monetary Fund (IMF) under the fresh loan programme, whereas new financing from the World Bank and Asian Development Bank has also been included in the estimated budget.

According to the Finance Ministry sources, new loan programme agreements will be made with financial institutions. The federal government aims to achieve budget targets before the anticipated arrival of the IMF review mission in Pakistan.

Negotiations for a new loan programme with the global lender are expected to commence in mid-May ahead of the budget which will be presented in June. The Finance Ministry sources said the Ministries had been instructed to complete the targets before the negotiations on the new loan programme.

They added that the details would be given to the IMF delegation when all the important targets were met. It has also been decided to have the budget strategy paper approved by the federal Cabinet before the IMF review mission arrives in the country.

According to the sources, the Finance Ministry has started preparing the budget to set the targets for debt repayment, defence budget and tax collections. Besides, the development and ongoing budget targets will also be determined, according to the paper.

Pakistan has been suffering the chronic ailment of how to meet external liabilities. Traditionally, it depended on remittances, export proceeds and foreign loans to meet its liabilities. But exports haven’t increased to match the imports and avenues of foreign aid have gradually dried up, putting pressure on the Rupee and essential imports.

Last year, it narrowly avoided default due to a timely short-term loan agreement with the International Monetary Fund which provided $3 billion during nine months. The country is once again looking towards the global lender to provide a fresh loan to keep it moving.

In the trying economic conditions, Pakistan has been heavily supported by the remittances its workers living and working around the globe send. The country received the second-highest remittances of the ongoing 2023-24 fiscal at $2.8 billion in April 2024.

According to the State Bank of Pakistan (SBP), the remittances increased by 3.5% to $23.8 billion cumulatively in the first 10 months of FY24 compared to the same period last year.

Remittance inflows during April 2024 were primarily sourced from Saudi Arabia ($712 million), the United Arab Emirates ($542.3 million), the United Kingdom ($403.2 million) and the United States of America ($329.2 million), according to the bank.

The remittances earlier had peaked near $3 billion in the prior month of March 2024, marking a 23-month high.

Separately, the Dawn newspaper reported that Pakistan is engaging with the Chinese leadership for the revival of more than 1800-megawatt of hydropower projects (HPPs) and investment from fresh Chinese companies in the country’s transmission and distribution network as part of the second phase of the China-Pakistan Economic Corridor (CPEC).

The authorities are trying to convene a meeting of the Joint Cooperation Committee (JCC) of the Cabinet on May 22-23 so that Prime Minister Shehbaz Sharif’s upcoming visit to Beijing early next month will be a success.

A high-level delegation led by Planning Minister Ahsan Iqbal is currently in China to pursue existing investors and financial institutions and tap into more firms in the transmission and distribution network as part of CPEC’s second phase.

In his meeting, Mr. Iqbal sought China’s continued cooperation in the early implementation of the Azad Pattan and Kohala hydropower projects. The two sides agreed to hold the next round of the Joint Working Group meeting on Energy (JEWG) soon.

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| Photo Credit: Reuters

India’s economy is expected to remain robust over the next two years even though headline growth in the country’s Gross Domestic Product (GDP) is forecast to slow from 7.6% in 2023-24 to 7% this year before improving to 7.2% in 2025-26, the Asian Development Bank (ADB) said.

In its Asia Development Outlook report released on April 11, the Bank said it expects retail inflation to ease to 4.6% this year and 4.5% in 2025-26. India’s ‘persistent’ food inflation is expected to drop to 5.7% as farm output returns to trend this year.

A projected normal monsoon this year will also help revive rural consumption. Rural consumption was muted last year due to erratic rainfall affecting the farm sector, with greater demand for work under the Mahatma Gandhi National Rural Employment Guarantee Act signalling the resultant stress.

“In India, growth is forecast to remain strong as rising consumption complements continued investment growth,” said Abdul Abiad, director of ADB’s macroeconomics research division. As India accounts for 80% of South Asia’s GDP, it is still the fastest-growing sub-region with improving domestic demand as prices moderate in most economies, he noted. South Asia is expected to grow 6.3% this year and 6.6% in 2025.

Higher incomes will spur consumer demand and confidence levels in urban consumers has improved, so demand is expected to rise from those areas with falling inflation and a gradual improvement in cities’ labour markets, the ADB reckoned. However, a rise in imports to meet domestic demand could widen the Current Account Deficit moderately to 1.7% of GDP this year and next year, it said.

India’s growth, the report said, will be driven by public and private sector investment demand and by gradual improvement in consumer demand as the rural economy improves. While exports are likely to be relatively muted this year as growth in major advanced economies slows down, they will improve in 2025-26.

“Foreign direct investment inflow will likely remain muted in the near term due to tight global financial conditions but will pick up in 2025-26 with higher industry and infrastructure investment,” the report averred.

India’s growth, the report said, will be driven by public and private sector investment demand and by gradual improvement in consumer demand as the rural economy improves. While exports are likely to be relatively muted this year as growth in major advanced economies slows down, they will improve in 2025-26.

Stressing that India’s economic outlook depends on price and financial market stability that are crucial for consumer and business confidence, the ADB said its projections face a downside risk from global shocks such as a spike in crude oil and energy prices leading to higher global inflation and tighter financial conditions.

“On the domestic side, there is a risk of underperformance in agriculture due to weather shocks that can affect demand and inflation,” it noted.

Among upside risks to its forecast, the Bank said, was faster-than-expected FDI inflow, particularly into manufacturing, which would improve output as well as productivity. “Better-than-expected global growth could boost exports and thus growth,” the ADB added.

The ADB’s growth forecast for India for FY25 is in line with the projections made by the Reserve Bank of India.
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The Asian Development Bank (ADB) on Thursday raised India’s GDP growth forecast for the current fiscal to 7 per cent from 6.7 per cent earlier, saying the robust growth will be driven by public and private sector investment demand and gradual improvement in consumer demand.

The 2024-25 growth estimate is, however, lower than 7.6 per cent projected for the 2022-23 fiscal. Strong investment drove GDP growth in the 2022-23 fiscal as consumption was muted, the ADB said.

The ADB had in December last year projected the Indian economy to expand 6.7 per cent in the 2024-25 fiscal.

“The economy grew robustly in fiscal 2023 with strong momentum in manufacturing and services. It will continue to grow rapidly over the forecast horizon. Growth will be driven primarily by robust investment demand and improving consumption demand. Inflation will continue its downward trend in tandem with global trends,” said the April edition of the Asian Development Outlook released on Friday.

Growth will be robust despite moderating in FY2024 and FY2025, it said. For the 2025-26 fiscal, the ADB has projected India’s growth at 7.2 per cent.

The ADB said exports are likely to be relatively muted this fiscal as growth in major advanced economies slows down but will improve in FY2025.

“Monetary policy is expected to remain supportive of growth as inflation abates, while fiscal policy aims for consolidation but retains support for capital investment. On balance, growth is forecast to slow to seven per cent in FY2024 but improve to 7.2 per cent in FY2025,” it said

To boost exports in the medium term, India needs greater integration into global value chains, the ADB added.

The ADB’s growth forecast for FY25 is in line with the projections made by the Reserve Bank of India (RBI).

The RBI last week had said GDP growth in the current fiscal is projected at seven per cent on expectations of normal monsoon, moderating inflationary pressures and sustained momentum in manufacturing and services sectors.

A view of the Asian Development Bank.
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Sri Lanka’s cabinet approved a $200 million loan from the Asian Development Bank (ADB), the Media Ministry said in a statement on September 26, as the country focusses on rebuilding its crisis-hit economy.

The funds will be obtained in a five-year loan to help the island navigate its way out of its worst financial crisis in more than seven decades.

 The Bank expects growth to be propelled by “robust domestic consumption as consumer confidence improves, and by investment including large increases” in government capital expenditure. File.
| Photo Credit: REUTERS

The Asian Development Bank (ADB) on September 20 pared its growth forecast for India’s economy to 6.3% for this year, from 6.4% estimated earlier, citing the impact of falling exports and erratic rainfall patterns that could hit farm output. 

The Bank’s economists also raised their inflation forecast for the year to 5.5% from 5% estimated in April and retained their real GDP growth projection for 2024-25 at 6.7%, influenced by expectations that private investment and industrial output will rise. 

Noting that the economy displayed robust growth of 7.8% in the first quarter of this fiscal year despite global uncertainties, the Bank expects growth to be propelled by “robust domestic consumption as consumer confidence improves, and by investment including large increases” in government capital expenditure through the rest of this year and next year. 

“However, as slowing exports could foment headwinds for the economy, and erratic rainfall patterns are likely to undermine agricultural output, the growth forecast for this year is revised down marginally to 6.3%,” noted the Bank’s Asian Development Outlook update.    

“Monsoon rainfall under the influence of a developing El Niño has led to erratic weather patterns, including flooding in certain regions and deficient rains, particularly in August. The erratic rainfall patterns have resulted in damage to the rice crop in particular and lower sowing for pulses in the kharif season,” the update pointed out, adding that it has slashed its farm sector growth hopes for the year by almost one percentage point.   

The ADB is upbeat on investment prospects in the economy, despite a decline in net foreign direct investment flows in the first quarter to $5 billion from $13.4 billion last year. 

Rana Hasan, the Bank’s regional economic advisor for South Asia, said that investments are currently driven in a big way by the central government’s capex push, but the latest quarter’s numbers show that States have also ramped up investments by 78%. “Moreover, signs of private capex can be gauged from the 19% growth in bank credit in the first quarter with a decline in banks’ non-performing loans, and an uptick in capacity utilisation rates in several industries with a better policy environment for manufacturing,” he said.