Balance of payments crisis not over yet despite dollars inflows

Foreign reserves would come under pressure during last quarter of ongoing fiscal year

ISLAMABAD  -   Pakistan’s balance of payments crisis would still persist despite receiving loans from friendly countries owing to massive repayment of $4.09 billion in next three months as principal and mark-up on foreign loans and international bonds.

The country would have to repay $4.09 billion in next three months (April to June) in terms of principal and mark-up on foreign loans and international bonds.

This would put pressure on the country’s foreign exchange reserves held by the central bank, which had gone to $10.7 billion after getting loans from Saudi Arabia, United Arab Emirates (UAE) and China.

An official of the Economic Affairs Division informed that Pakistan would repay $4.09 in last quarter (April to June) of the ongoing fiscal year. Giving details, he informed that Pakistan will repay $1.34 billion in April 2019, $1.75 billion in May 2019 and over $1 billion in June 2019. One of the major chunks in repayment would be the maturity of five years bond of $1 billion, which is become due in coming April 2019. Pakistan had launched $2 billion bond on April 9, 2014 out of which $1 billion was generated on five-year note at a yield of 7.25 percent and another $1 billion for a period of 10 years at the rate of 8.25 percent.

On the other hand, the inflow of dollars is very slow in the country. The multilateral and bilateral sources are giving loans to Pakistan at much slower pace during ongoing fiscal year mainly due to the absence of International Monetary Fund (IMF) programme.

Pakistan borrowed $2.94 billion loan from multilateral and bilateral sources in eight months (July to February) of the ongoing fiscal year, which were lesser than the need of the government.

The $2.94 billion loan disbursements from July through February are equal to only 29.4 percent of the original annual estimates. Pakistan had estimated to receive $10 billion as foreign assistance from bilateral, multilateral and banking sources during FY2019.

The State Bank of Pakistan (SBP) in its monetary policy stated that the country’s reserves are still below the standard adequacy levels. “With an improvement in the external balance as well as an increase in bilateral official inflows, SBP’s foreign exchange reserves gradually recovered to US$ 10.7 billion on 25th March 2019.

While the reserves are still below the standard adequacy levels (equal to three months of imports cover), the recent improvement on the external front has nevertheless improved business confidence. This is captured in the recent wave of IBA-SBP surveys of large number of firms in industry and services sectors,” stated the SBP.

The incumbent government, after making hectic efforts, succeeded in arranging financing to avert the balance of payment crisis.

Prime Minister Imran Khan had visited friendly countries like China, UAE and Saudi Arabia for requesting to provide loans. However, the reserves, which had increased to $10.7 billion, would come under pressure during the last quarter of the ongoing fiscal year. 

Pakistan was facing a financing gap of $12 billion after taking into account all projections of dollar inflows during the current fiscal year 2018-19. Pakistan had already received three billion dollars from Saudi Arabia. Meanwhile, the deferred oil payment facility is also in the pipeline, which would reduce the pressure on the imports of the country.

The UAE had so far deposited $2 billion in SBP’s account since January 2019. The official said that Pakistan would receive remaining one billion dollar from UAE next month (April). China has deposited $2.1 billion (RMB 15 billion) in State Bank of Pakistan (SBP)’s account to jack up the foreign currency reserves.

ePaper - Nawaiwaqt