Cash-strapped Pakistan faces forex crunch, selling off public assets

Islamabad: Unable to meet its foreign exchange requirements, Pakistan’s capital Islamabad is selling its public assets to third countries. Islamabad leased four of its berths 6-9 at the eastern jetty of the Karachi port to a UAE-based company for US$220 million. Under the term of the 50-year concession agreement, the newly created Karachi Gateway Terminal Limited (KGTL) will manage, operate, develop the port terminals and expand its capacity.

The move is the first intergovernmental transaction under a law enacted last year to raise emergency funds. Leasing a terminal solves a dual purpose. As it provides urgently needed foreign exchange, it also eases the burden of providing foreign exchange for the vital imports required to handle and develop the port.

Though Islamabad had been offering its property since last year, no one showed interest. But now one of its friendly countries, UAE has agreed to buy stake in Karachi port to bail out the country at the time of unprecedented forex crisis. The current political and economic uncertainties have kept foreign investors away from Pakistan.

cre trending stories

Meanwhile, Islamabad has decided to lease out the first phase of the New Islamabad International Airport to international investors. Its plans to lease out two other international airports in Karachi and Lahore faced difficulties mainly due to non-payment of dues by Pakistan International Airlines and other pending dues. Also, Islamabad airport has ‘cleaner’ transactions as compared to other airports. It is common knowledge and perception that Pak public property is not clean for businesses and investment.

The money Pakistan gets from friendly countries has dried up. Troubled Pakistan is currently not able to get loan or deposit transfer easily from its friendly countries. As it prepares for new challenges and adverse economic impact as one of its trusted development partners, Saudi Arabia has ended its ‘blank check’ aid strategy, a move towards economic accountability for struggling states including Pakistan. A symbol of change.

There are reports that Saudi officials are getting frustrated seeing their financial aid draining out without any positive results in the struggling economies. Due to this, Saudi Arabia is no longer ready to bail out Islamabad and has refused to give ‘easy money’ to Pakistan till it implements economic reforms.

According to analysts, since the Pak economy is badly managed, friendly countries are pressurizing Islamabad to first accept the IMF’s terms so that the economy can be restructured and reformed. Delay in IMF help is hurting Pakistan’s reputation.

Now the Government of Pakistan has no option but to obey the IMF. The National Assembly finally approved changes in the Finance Bill 2023-24, which included 215 billion Pakistani rupees in additional tax measures, spending cuts (Rs 85 billion) and the power to increase the petroleum levy from Rs 50 to Rs 60 per liter Is. , among other criteria. The budget was approved under the close supervision of the IMF in an effort to secure pending funds. The government now hopes to be successful in securing much-needed bailout funds.

Islamabad has also realized that foreign investors are leaving the country. Recently Bayer’s management sold its culinary assets to a local company while assuring job security of the existing employees. Since the workers continue to be employed as per the agreement, there is no need for retrenchment packages, the brunt of which is borne by both the country and the workers. Bayer is the second international pharmaceutical company to exit Pakistan.

Earlier in November last year, American pharmaceutical company Eli Lilly had announced the closure of its business in Pakistan. Shell Pakistan also announced that its parent company, Shell Petroleum Company Limited, has notified its intention to sell its stake in Shell Pakistan Limited. Shell Pakistan has been in business for over 75 years and has a substantial retail presence and a strong lubricants business.

There is a long list of foreign companies selling 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 manufactures purified terephthalic acid (PTA), said it is selling its entire 75.01 per cent stake in the local firm. Lotte’s existence is a major blow to Pakistan’s textile industry. The divestment by the Korean investor is part of a years-old trend in which foreign companies are exiting the Pakistan market.

Subsequently, many foreign investors also reported losses in their Pakistan investments. Pak Suzuki Motor Company Limited announced repeated shutdowns of its motorcycle and four-wheeler plants due to the Letter of Credit (LoC) crisis. The rupee has fallen more than 20 percent this year after authorities devalued the currency, making it one of the worst performers globally. Indus Motor, a company that assembles Toyota vehicles in Pakistan, has reported a 62 percent decline in its profits in the third quarter of the financial year 2022-23.

Critics point out that over the years, Islamabad has moved towards a consumption-based and import-based economy, leading to a depletion of its foreign exchange reserves, which are mainly held by multilateral institutions such as the IMF, ADB, and the IDB. Relies on bilateral loans from GCC and China. , As the Pakistan crisis deepened, aid flows from global donors remained well below desired levels. Although Islamabad has been claiming that it has always been fighting against terrorism, liberal donors have always doubted this claim over the years. This has damaged the prestige of Pakistan.

Agitational politics, cataclysmic floods, import restrictions and the looming IMF bailout over minimal foreign exchange reserves ultimately forced its poor citizens to bear the brunt of the uncertainty. The government of Pakistan is now selling off its assets as a last resort to bring in whatever foreign exchange it can muster.