KARACHI: The financial market dealing with foreign exchange is tense on reports about the expected higher dollar outflows.
Sources in the financial sector not willing to be quoted said the State Bank of Pakistan (SBP) is currently burdened with arranging $1.8 billion for repayment of a Chinese loan due in March.
“The Ministry of Finance has yet not provided local currency equivalent to $1.8bn to the State Bank for making payment to China,” said the informed sources in the finance ministry.
Despite higher outflows of profits and dividends on foreign investments during the first seven months of the current fiscal year, the stuck-up amount is more than what had been repatriated.
Sources said the local currency against $800 million has been provided but the central bank is reluctant to repatriate this amount.
The SBP has been striving to maintain its foreign exchange reserves above $8bn to ensure exchange rate stability. However, several repayments are in queue for debt servicing, profits outflows and other dues.
Pakistan facing a serious balance of payments crisis successfully managed repayment obligations in the first half of the current fiscal year.
During the first seven months of FY24, the current account deficit was $1bn against $3.8bn in the same period of last year. However, the increasing imports could widen the CAD to a much higher level till the end of this fiscal year on June 30.
The imports are bound to increase by more than 50pc in the remaining months of the FY24 as per the IMF condition.
“The problem is that the IMF likes to see the reserves of the State Bank at $9bn at the end of this fiscal year, but the inflows and outflows have lost the balance,” said a senior analyst.
Financial sector experts said the country has no clue how to raise dollars from anywhere except the International Monetary Fund (IMF) and other lending agencies. However, convincing the lenders for more loans would not be easy. For a new coalition government in Islamabad, it would be hard to accept the expected tougher conditions of the IMF. For example, checking the inflation, which is still on average around 28.7pc, the interest rate may not be reduced. The high cost of capital would greatly hit the growth as the economy contracted in FY23 and a meagre projection of 2pc was made for FY24.
Trade and industry have been shouting for a year that they have lost competitiveness with such a high rate of interest along with regular increases in electricity and gas prices.
“The industry has been suffering and would not offer more for exports but the political government will pay heavy cost of negative or low economic growth as it will generate unemployment on a large scale,” said Aamir Aziz, a manufacturer and exporter of textile finished products. Unemployment is one of the biggest problems, particularly for young skilled and unskilled people. About 0.9 million Pakistanis left the country in search of jobs in 2023.
Unconfirmed rollover
Reports that appeared in the media said that China has rolled over the $2bn loan, which Pakistan is required to repay in March, but the Ministry of Finance has not confirmed the development till the filing of this story.
Published in Dawn, February 29th, 2024
