Cash Strapped Pakistan Faces Forex Crisis, Puts Public Assets On Sale

Islamabad: Unable to meet its forex requirements, Pakistan's capital Islamabad is selling its public assets to third countries. Islamabad leased four of its berths 6-9 at Karachi Port's East Wharf to a UAE-based company for USD 220 million. Under the term of the 50-year concession agreement, the newly created Karachi Gateway Terminal Ltd. (KGTL) would manage, operate, develop port terminals and increase its capacity.

The move marks the first inter-governmental transaction under a law enacted last year to raise emergency funds. Leasing of terminal solves twin purposes. As it provides urgently needed forex, it also reduces the burden of providing forex for critical imports required for handling and developing the port.

Though Islamabad was offering its assets since last year, no one showed interest. But now one of its friendly countries, the UAE has agreed to buy an interest in Karachi port to bail out the country at a time of unprecedented forex crisis. The ongoing political and economic uncertainties had kept foreign investors out of Pakistan.

Meanwhile, Islamabad has decided to lease out the first phase of the New Islamabad International Airport to international investors. Its plan to lease out other two international airports in Karachi and Lahore faced difficulties, mainly due to nonpayment of dues by Pakistan International Airlines and other pending dues. Moreover, the Islamabad airport has 'clean' transactions compared to other airports. It is a general knowledge and perception that Pak public assets are not clean for businesses and investments.

Pakistan's source funds from friendly countries which were flowing in are dried up. At present, the crisis stuck Pakistan is not getting easy loans or deposit transfers from its friendly countries. It is bracing for new challenges and adverse economic impact as one of its reliable development partners, Saudi Arabia ends its 'blank checks' aid strategy, marking a shift toward economic accountability for struggling states including Pakistan.

There are reports of Saudi officials getting frustrated while watching their financial assistance evaporate in struggling economies without any positive outcome. Due to this Saudi Arabia is no longer willing to bail out Islamabad and it has refused to provide 'easy money' to Pakistan until it implements economic reforms.

According to analysts, since the Pak economy is badly managed, the friendly countries are pressuring Islamabad to adopt IMF conditions first so that the economy could be restructured and reformed. The delay in IMF assistance is hurting the credibility of Pakistan.

Now, the Pakistan government has no option but to listen to the IMF. The National Assembly finally approved changes for the Finance Bill 2023-24, including Pakistani rupees (Rs) 215 billion in additional tax measures, a spending cut (Rs 85 billion) and the power to increase the petroleum levy from Rs50 to Rs 60/litre, among other criteria. The budget was approved under the tight watch of the IMF in an attempt to secure pending funds. Now the government expects a breakthrough to get direly needed bailout funds.

Islamabad has also realized that foreign investors are withdrawing from the country. The recent being Bayer's management selling its Pak assets to a local company, assuring existing employee's job security. Since the workers continue to be employed as per the agreement, there is no need for retrenchment packages which is again both the country and workers suffer. Bayer is the second international pharmaceutical company to exit Pakistan.

Earlier in November last year, US pharmaceutical company Eli Lilly announced the closing of its businesses in Pakistan. Shell Pakistan also announced that its parent company, Shell Petroleum Company Ltd. has notified its intent to sell its shareholding in Shell Pakistan Ltd. Shell Pakistan has been in the business for 75 years and has a substantial retail footprint and a strong lubricants business.

There is a big list of foreign companies selling their stake in Pak business. It all started last November with Norwegian company Telenor offering to disinvest in Pakistan's telecom sector. South Korea-based Lotte Chemical Company Pakistan Ltd. which makes purified terephthalic acid (PTA) said that it is selling its entire stake of 75.01 per cent in the local firm. Lotte's existence is a major shock to Pakistan's textile industry. The divestment by the Korean investor is part of a years-long trend in which foreign companies have been exiting the Pakistan market.

Subsequently, many overseas investors also reported losses in their Pakistan investments. Pak Suzuki Motor Company Ltd. announced frequent closure of its motorcycle and four-wheeler plants due to the Letter of Credit (LoC) crisis. The rupee has slumped more than 20 per cent this year after officials devalued the currency, making it one of the worst performers globally. Indus Motor, the assembler of Toyota vehicles in Pakistan, reported its profit tumbling 62 per cent for the third quarter of fiscal year 2022-23.

Critics point out that over the years, Islamabad progressed as a consumption-led and import-led economy, creating a drain on its forex reserves, mainly dependent on funding from bilateral loans from GCC and China besides multilateral entities like the IMF, ADB & IDB. As the Pakistan crisis saturated, aid flows from global donors remained far below the desired levels. Though Islamabad is claiming that it is always fighting against terrorism, over the years, liberal donors had always doubted this claim. This has damaged the reputation of Pakistan.

Dragged down by agitational politics, cataclysmic floods, import restrictions, and a dangling IMF bailout on top of bare minimum foreign exchange reserves, eventually force its poor citizens to bear the brunt of uncertainty. Pakistan's government is now selling its asset as a last resort to bring in whatever forex it could mop up.