Syed Shabbar Zaidi

In this important article I will present the projected cash flow statements of Pakistan for the period starting from July 2023 and ending on June 30, 2026. The information has been fundamentally obtained from the IMF report up to February 2022 available on the website. I had been constantly warning the people in power to understand that as an accountant I am highly uncomfortable with projected cash flows of the country for the following four years. People may argue that there is no accounting for a country like a business, I agree with this statement, however, as far as foreign currency is concerned there is no room to play around by printing notes as rupees can be printed but not the greenback. The summarized cash flows in dollars for the following four years are shown in Table-1.

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Period 2023 2024 2025 2026

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Exports 31.64 33.22 35.55 37.89

Imports 67.17 69.75 72.41 75.89

TradeDeficiton

goods (35.52) (36.53) (36.86) (38. 00)

Servicesoutflow (10.94) (10.91) (11.26) (12.25)

Netdeficiton goodsand services (46.46) (47.44) (48.12) (50.25)

Home Remittances 33.30 35.08 35.89 38.46

Netcurrent accountdeficit (13.16) (12.36) (12.23) (11.79)

Netinflowof

loans 1.59 0.94 1.96 2.19

Investments including

portfolio investme 9.90 12.57 12.57 12.38

Netcashinflow

&(outflow) (0.67) 1.51 2.32 2.78

Totalforeigndebt atyearend 138.57 145.77 152.87 153.82

Yearendreserves asperold estimate 20.68 20.13 20.87 23.06

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This is an optimistic position. It effectively does not take into account the disturbances which have been and are being made during the financial year ending on June 30, 2022.

In the aforesaid analysis, the IMF has taken the year end reserves as of June 30, 2022 at $ 21.21 billion. As per the actual estimate, the reserves as of June 30, 2022 are expected to be $ 11 billion. This dip has eroded the stability of Pakistan’s cash position.

In these projections there is an average investment inflow of $ over 10 billion each year This estimate appears to be on the higher side keeping in view of international and national political environment. The expected cut is not less than 50%.

The other negative trend over this optimistic position is that imports are expected to increase in dollar terms on account of overall increase in the international prices of various commodities, including oil and food. A 5% increase will not be a wrong estimate. As an accountant, which I have to be when accounting for foreign currency accounts, it can be easily deduced that cash flows are out in the following years and an eventual default if we do not restructure our state finances. The revised status will be as per Table-2:

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2023 (USD) 2024 2025 2026

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Estimated reservesasabove 20.68 20.13 20.87 23.06

Reductiondueto

openingbalance asatJune 30,

2022 (10)

Expected decreasein investments (5) (5) (5) (5)

Expectedincrease ingoodsimports (3) (3) (3) (3)

Estimated reservesatyear

end 2.68 (6.68) (14.68) (20.68)

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This therefore means that if we do not adjust our books then problems will arise during 2023-24 and not before provided the estimates as above remain valid. Without prejudice to this projection, no state of our size can operate with reserves of $ 2.68 billion. This therefore means that business as usual cannot be carried on. We have to roll our sleeves up and take drastic measures to correct the course.

In my view the main problem for Pakistan is not only the matter of whether increase in petroleum prices’ increase is passed on to consumers or not. That is effectively a rupee issue, whereas our problem is the scarcity of dollars. Our primary problem is that we do not have sufficient dollars in the forthcoming four years if we continue to run the country in the manner we are doing. I will write a separate article identifying the reasons, persons and policies that brought us to this pass. All the aforesaid estimates are valid only if we remain in the IMF programme; otherwise, there will be outflows on account of foreign debts without adequate dollar inflows which will make the matter completely out of hand. In order to remain in the IMF programme we have to comply with their conditions and prior actions which include an increase in petroleum prices. This is not rocket science. It is a simple numbers game and almost all the major factors are easily understandable. The summary of the discussion is that cash flows are a matter of serious concern and there may be chances of a shock if (a) there is a primary change in the aforesaid estimates and (b) we take any insane decision to abort the IMF programme. It is also necessary that Chinese and the Middle Eastern friends continue with their support. However we have not seen unconditional positive signs from their side so far. Given this situation, it is extremely difficult for Pakistan to maintain the rupee-dollar parity amid deepening political strife.

In the present situation we have to identify the measures which this nation has to adopt if we help the country avert a possible default. Nevertheless it is my view that we can manage with very thin margins provided we learn to live within our means. An article ‘Living beyond our means’ penned by this writer and carried by this newspaper last week received an overwhelming response from people, especially those living abroad.

The biggest question which this country is facing is that people in power and in opposition are not talking honestly. If the situation is bad it is to be shown to the owners, the people of Pakistan. When one party is in power it insists that everything is correct. However, the next day when they are in opposition, the same state of affairs becomes ‘bad’. The solution is to ignore these people at least on overall economic matters and educate Pakistanis about the real financial position of the country. This difficult transaction can be done within the framework of the constitution. This writer will be dealing with this subject in his subsequent articles as well.

On the international level, these figures are not big; however, the manner in which this country has been run has made the situation miserable. A recent acquisition by a US entrepreneur of a company was worth around 44 billion dollar. India’s reserves are over 650 billion dollars.

The first measure is to reduce the net deficit by about 10 percent on account of goods and services which in the subsequent years is $ 175 billion which will save us around $ 17.5 billion and will significantly impact on our finances.