On Tuesday, the AIIB pumped $500 million into Pakistan’s state bank as co-financing for the Building Resilience with Countercyclical Expenditures (BRACE) development programme. While any influx of cash is good for Pakistan’s falling reserves, the risk of default still remains. Added to this, the SBP had already gained a payment of $1.5 billion on October 26th as loan disbursement. This high frequency of cash hand-outs is good for immediate relief but cannot be proactive for the long run.
The delay in the ninth review of Pakistan’s economy by the IMF had partly blocked currency flows to the country. The country’s reserves, as of November 18, stood at a mere $7.8 billion. This decrease, due to recent external debt repayments, was barely enough to cover imports for a month. In that regard, this forex boost seems to provide some import cover and release the currency under pressure.
However, the situation is still difficult. The domestic currency inched down by 0.05% to a new six-week low. There is also a maturing Sukuk bond awaiting payment of $1 billion. There is hope that this current cash-bailout will provide a resolution to the delay in IMF’s ninth review of the loan and open the door for new loan inflows. However, until the December deadline, pressures remain high.
While the minister of finance on Bloomberg projections has pitched Pakistan’s one-year probability of default at a low 10 percent, the risk is still on the horizon. With a high Credit Default Swap (CDS), concerns remain.
The bottom line is that cash infusions have been ongoing for some time now and reserves are still on a downward trend. Added to this, remittances are declining and a balance between inflows and outflows must be reached. The first quarter of the FY has seen many fiscal slippages and as the December deadline draws nearer, the effort for economic stability will also become tense.