Foreign exchange reserves to come under pressure in next few months

ISLAMABAD-Pakistan’s foreign exchange reserves would come under pressure in next few months due to the massive repayment against previous loans and resurgence of current account deficit.

The country has to repay over $7 billion to the different countries and institutions before June this year, which would put pressure on the country’s foreign exchange reserves. Meanwhile, resurgence of current account deficit may also pose threat to the external sector. Earlier, the current account was in surplus for few months, which helped in sustaining the foreign exchange reserves of the country. The country’s foreign exchange reserves are currently standing at $20.04 billion by February 19. The breakup of $20.04 billion showed that reserves held by the State Bank of Pakistan (SBP) are $12.91 billion and commercial banks have $7.13 billion, according to the latest data of the SBP. The present reserves level provides the import cover of almost around 3 months.

The official documents showed that Pakistan would have to repay around $7 billion in six months (January to June) of the ongoing financial year. The amount included principal as well as interest payment. The documents showed that Pakistan has to repay $10.4 billion to the external sources in entire current fiscal year. Meanwhile, the government had paid only $3.3 billion in first half (July to December) of the year 2020-21. This showed the country had repaid $2.7 billion as principal and $583 million as interest on the outstanding stock of external public debt. During July-December 2020-21, the government settled $1.579 billion worth of foreign commercial loans. Similarly, the government has also repaid $1.431 billion to multilateral and $102 million to bilateral development partners. Considering foreign exchange constraints, financing of development projects and repayments of these huge external public debts compel the incumbent government to further borrow from multiple sources.

On the other hand, resurgence of current account deficit may put pressure on the foreign exchange reserves of the country. Pakistan’s current account balance had recorded a deficit in last two months of December and January after remaining in surplus for a record period of five months (July-November) of current fiscal year 2020-21. Pakistan’s current account deficit was recorded at $229 million in January 2021 compared to a deficit of $652 million in December 2020. Earlier, the current account deficit remained in surplus.

The officials of the Ministry of Finance and Economic Affairs Division have admitted that country’s external sector might come under pressure. However, they said that government is arranging resources for maintaining the foreign exchange reserves. He said that government has estimated inflows worth of $5.57 billion from international donors in next five months of the current fiscal year. The data showed that the government has received $6.66 billion total external inflows from multiple financing sources which are 54 percent of annual budget estimates of $12.233 billion for the entire fiscal year 2020-21.

Meanwhile, the officials said that Pakistan had also revived loan programme with International Monetary Fund (IMF), which would pave way for the releasing loans for the country. The government is also arranging to issue Eurobonds in international market to generate more resources, they added.