KARACHI: Reports of increased dollar outflows are causing anxiety in the foreign currency financial sector.
The State Bank of Pakistan (SBP) is currently tasked with raising $1.8 billion for repayment of a Chinese loan that is due in March, according to sources in the financial sector who requested anonymity.
The State Bank needs local currency worth $1.8 billion to pay China, but the Ministry of Finance hasn’t yet given it to them, according to knowledgeable sources within the ministry.
The stuck-up amount exceeds the amount that had been repatriated, notwithstanding larger outflows of revenue and dividends on foreign investments during the first seven months of the current fiscal year.
According to sources, the central bank is hesitant to repatriate this sum even though the local currency equivalent to $800 million has been given.
To guarantee exchange rate stability, the SBP has been working to keep its foreign exchange reserves above $8 billion. Nonetheless, there are a number of repayments pending for other obligations, earnings outflows, and debt servicing.
In the first half of the current fiscal year, Pakistan, which is suffering a severe balance of payments crisis, successfully managed repayment obligations.
The current account deficit for the first seven months of FY24 was $1 billion, as opposed to $3.8 billion at the same time previous year. However, until the end of this fiscal year on June 30, the growing imports could cause the CAD to widen to a considerably larger level.
According to the IMF’s requirement, imports must rise by more than 50% during the remaining months of FY24.
According to a senior analyst, “the issue is that the inflows and outflows have lost the balance, but the IMF likes to see the State Bank’s reserves at $9 billion at the end of this fiscal year.”
Experts in the financial industry stated that aside from the International Monetary Fund (IMF) and other lending organizations, the nation has no idea how to raise money from anywhere. It would be difficult to persuade the bankers to grant additional loans, though. It would be difficult for the incoming coalition administration in Islamabad to agree to the IMF’s anticipated stricter requirements. For instance, the interest rate might not be lowered based on the inflation rate, which is now hovering around 28.7 percent on average. The economy shrank in FY23, and a meager 2 percent growth estimate was made for FY24. This meant that the high cost of capital would severely hinder growth.
For the past year, trade and industry have been adamant that they are no longer competitive due to the high interest rate and ongoing rises in the cost of gas and electricity.
Aamir Aziz, a producer and exporter of completed textile goods, stated, “The industry has been suffering and would not offer extra for exports but the federal government is going to incur the steep price of negative or poor growth in the economy as it will generate unemployment on a large scale.” One of the largest issues is unemployment, especially for young people with and without skills. In 2023, about 0.9 million Pakistanis departed the nation in pursuit of employment.
Disputed rollover
Media reports said that China has extended the $2 billion loan, which Pakistan must return in March. However, the Ministry of Finance did not provide confirmation of the situation until this piece was filed.
