ISLAMABAD - Pakistan’s foreign exchange reserves would remain under pressure during ongoing financial year due to massive repayment worth of $7.4 billion on the previous loans and increasing current account deficit.
Pakistan’s reserves are already sharply depleting, as it come down by over $4 billion in a period of less than one year. The country’s total foreign liquid reserves stood at $20.05 billion in which State Bank of Pakistan (SBP)’s held foreign exchange reserves are $14.38 billion and commercial banks reserves have $5.67 billion.
The reserves are decreasing due to loan repayment and funding current account deficit, which is widening due to massive increase in imports as against exports and foreign remittances. The increasing current deficit is also threat to the foreign exchange reserves. Pakistan’s current account deficit widened to $2.1 billion in July 2017 against just $662 million in the same period last year due to increase in trade deficit. Meanwhile, the country would repay $7.4 billion on external debt including $1.6 billion on interest payment during the current fiscal year. Similarly, the country would repay $4.263 billion in 2018-19; $7.07 billion in 2019-20 and $4.571 billion in 2020-21, according to the details presented in the National Assembly.
The huge repayment of $7.4 billion on foreign loans would further erode the country’s reserves. The government would have to maintain reserves, which could cover three months import of the country. Otherwise, the World Bank and other multilateral donors could halt their loan programme with Pakistan if reserves fall below three months of import bill.
Gross foreign currency reserves may slip below the threshold of three-month import cover either in the last week of August or the first week of September On the other hand, the government had already started considering several options to boost the reserves. One of the options available with the government is to issue Sukuk bond in international market, which could generate $1 billion. Pakistan had successfully tapped international capital market four times since 2014. “The government is likely to hold the auction of Sukuk bond in next couple of months,” said an official of the Ministry of Finance.
He further said that the government is also working on a plan to enhance exports and control imports to curb the soaring current account deficit of the country. The government is considering several options to control imports. The Ministry of Commerce is likely to finalise the tariff rationalisation plan, helping significantly reduce the import bill, in next few days. Similarly, the ministry is also working on a plan to boost the tumbling exports of the country.
The official informed that things had started improving, as exports in July 2017 posted a healthy growth of 10.5 percent compared to July 2016. He also highlighted that workers' remittances, which had remained stagnant due to global conditions, have shown an impressive growth of 16 percent in July 2017 compared to July 2016.
The government is also considering various financing measures to finance the current account deficit in the short term. The increased inflows of Foreign Direct Investment and other investments under CPEC will largely fill this gap.
