Pakistan’s $33.5 billion external financing needs are fully met for the fiscal year 2022/23, according to the central bank chief, who added that “unwarranted” market concerns about the country’s financial position will dissipate in the coming weeks.
Fears about Pakistan’s stuttering economy have grown as its currency fell nearly 8% against the US dollar in the last trading week, while the country’s forex reserves are below $10 billion and inflation is at its highest level in more than a decade.
financing requirements
“Our external financing needs over the next 12 months are fully met, supported by our ongoing IMF programme,” said Acting State Bank of Pakistan governor Murtaza Syed in an emailed response to questions.
Pakistan and the International Monetary Fund (IMF) reached a staff level agreement last week for the disbursement of $1.17 billion in critical funding under resumed payments of a bailout package.
“The recently secured staff-level agreement on the next IMF review is a very important anchor that clearly distinguishes Pakistan from vulnerable countries, the majority of which do not have IMF support,” he said.
However, the lender’s board must approve the agreement before disbursement, which is expected in August, and prior policy actions must be completed, according to sources familiar with the matter.
Despite IMF funding, some question Pakistan’s ability to meet external financing needs, including debt obligations.
IMF
The governor downplayed those concerns, claiming that Pakistan’s public debt profile, which is one of the “main flashpoints” for markets these days, is far superior to that of vulnerable countries with high public debt. The public debt-to-GDP ratio in the country is 71%.
“Pakistan’s external debt is low, has a relatively long maturity, and is on more favourable terms because it is heavily skewed toward concessional multilateral and official bilateral financing rather than expensive commercial borrowing,” he explained.
The governor stated in a recent presentation to international investors reviewed by Reuters that $33.5 billion in gross external financing needs would be “comfortably” met with $35.9 billion in available financing. The majority of the financing came from multilaterals, oil payment facilities, and rollovers of bilateral financing, with the most funding required in Q2.
In addition, the presentation compared Pakistan’s situation to that of Sri Lanka, which recently defaulted, and stated that “Pakistan tightened monetary policy and allowed the exchange rate to depreciate as soon as external pressures began.”
It went on to say that Sri Lanka’s fiscal situation was far worse than Pakistan’s, with primary deficits three to four times higher since the pandemic.
The governor claimed that Pakistan is being unfairly lumped in with more vulnerable countries amid global market panic caused by a commodity supercycle, Fed tightening, and geopolitical tensions.
“Markets are reacting to these shocks in an unfairly broad-brush manner, failing to take into account Pakistan’s relative strengths,” he said. “We anticipate that this reality will emerge in the coming weeks, as will the unfounded fears that have surrounded Pakistan.”
According to previous report of SBP
According to data released by the State Bank of Pakistan, the central bank’s foreign exchange reserves fell by 4% on a weekly basis (SBP)
The SBP’s foreign currency reserves were $9,328.6 million on July 15, down $389 million from the previous day’s total of $9,717.5 million.
The decrease was primarily due to external debt repayments, according to the central bank.
The country’s total liquid foreign currency reserves, including net reserves held by banks other than the SBP, were $15,241.5 million. Banks’ net reserves totaled $5,912.9 million.
The central bank’s foreign exchange reserves reached an all-time high of $20.15 billion in the week ending August 27, 2021, after Pakistan received a general allocation of Special Drawing Rights (SDRs) worth $2,751.8 million from the IMF on August 24.
