KARACHI: External debt servicing rose to an alarmingly high level as it reached close to $7 billion in FY14 which is almost 80 per cent of the current reserves of the State Bank while the reserves are declining on week on week basis.

A recently produced data of the State Bank showed the country paid $6.820bn as debt servicing in FY14, including $5.910bn as principal amount and $915m as interest.

Know more: Reserves shrink as SBP repays debt

The government, trapped in floods and political crisis, may face another serious turmoil by the end of this fiscal year if IMF and other donors did not release the promised loans.

The gravity of the situation is visible in the wake of increasing trade gap, with no foreign inflows, no release of instalments from IMF and no interest of foreign investors in the country.

The disappointing foreign investment has developed another difficult situation under which repatriation of profits and dividends on foreign investments have also reached close to $1bn.

The sit-in at Islamabad and the flash floods throughout the country, which have hit both people and their belongings, including their crops, animals and houses, may convert debt servicing into a serious financial crisis.

As the Nawaz government assumed charge in Islamabad 14 months back, it averted the financial turmoil as reserves of the State Bank had fallen above $3bn and rupee had started slipping from Rs98 to Rs110 against the dollar.

Pakistan succeeded to borrow from international market, though at a very high rate, but it boosted the country’s image, encouraging IMF and other donors to help Pakistan.

However, situation seems to have changed again as exports have dropped, and imports jumped by 32pc in the first two months of the current fiscal year and rupee has lost 4pc value to hit Rs102-3 against the dollar.

Though remittances are increasing at the rate of more than 12pc, it would not be enough to absorb the future shocks.

Analysts believe that the first quarter of the current fiscal year could be a shock to economic managers of the country as it would result in wide trade gap that could enlarge the current account deficit. Trade deficit in August this year was $2.8bn which is 76pc higher than August of last year.

The current account deficit in July was minus $454m, which was much higher than minus 125m of last year.

In FY14, the deficit was $2.97bn against $2.5bn in the previous year.

The July deficit shows that the trend was not favourable for an economy which is facing many challenges.

Published in Dawn, September 14th , 2014