FX reserves may rise in H2FY23: All debt repayments on track, says SBP governor

KARACHI: State Bank of Pakistan (SBP) Governor Jameel Ahmad Thursday said all debt repayments are on track and the country’s foreign exchange reserves are expected to increase in second half of the current fiscal year.

In the latest episode of the SBP Podcast series, Governor SBP discussed the country’s capacity to meet its international financial obligations and addresses concerns over external account vulnerabilities.

On the domestic front, he said the economy is impacted by floods which created challenges for Pakistan. Overall, the situation is challenging; however, the SBP and the GoP are taking measures to improve the situation.

Governor SBP said for FY23, around $33 billion have to be repaid to external stakeholders, including the CAD of $10 billion and $23 billion in loan repayments.

Out of the payable $23 billion external debt, Pakistan has already repaid more than $6 billion. Besides this a bilateral loan of $4 billion has been rolled over with the cooperation of relevant countries, he maintained.

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Another $8.3 billion maturing obligations are expected to be rolled over as discussions are under way, he added.

He said the remaining outstanding repayment stands around $4.7 billion for the remainder of this fiscal year. This includes $1.1 billion in commercial loans that have to be paid to foreign banks and $3.6 billion in multilateral loans. Pakistan has received foreign exchange inflows of $4 billion (excluding the rollovers of $4 billion mentioned above).

“Pakistan will continue to make timely loan payments while inflows are expected to increase significantly in the second half of the current fiscal year,” Jameel said. Along with the rollover of some external obligations, Pakistan’s foreign exchange reserves are expected to increase significantly in the coming months, he added.

He said globally, the war in Ukraine, a historic increase in the international commodity prices and monetary tightening pursued by central banks are major challenges. As a result of this, developing countries, including Pakistan are facing difficulties in raising funds from international financial markets, he added.

During the week 28 Nov-02 Dec, the SBP reserves reached $7.9 billion after receipt of $500 million from AIIB. During the week, the SBP paid US$ 1,000 million against maturing Pakistan International Sukuk and some other external debt repayments. Accordingly, Pakistan’s foreign exchange reserves stood at $6.7 billion as on December 2, 2022.

Governor SBP said earlier the central bank had repaid two commercial loans totaling $1.2 billion. These banks are expected to refinance the same amount, in coming days, helping to raise the country’s foreign exchange reserves. The government is also in talks with a friendly country for the disbursement of a $3 billion loan and negotiations with multilateral agencies are progressing for further financial support, he added.

According to Jameel Ahmed, the debt profile of Pakistan is composed of bilateral and multilateral creditors and only a small percentage is owed to foreign banks.

The SBP has enough reserves to repay all obligations in an effective manner and the expected inflows will boost forex reserves.

He further said that at the beginning of the fiscal year, the SBP projected CAD at $10 billion for FY23. However, as Pakistan was hit by historic floods, this led to expectations of some increase in imports particularly that of wheat, fertilizers and cotton.

Along with this, our exportable crops were impacted due to floods. As a result, it was expected that Pakistan’s CAD will increase by 2 to 3 billion USD. In the international market, however, some important developments have taken place including a decrease in the price of petroleum products.

The SBP has also taken policy actions that will reduce some outflows significantly. As a result of these policy interventions and other measures, it is expected that CAD will remain below $10 billion for FY23.

In the last quarter of FY22, the SBP and government of Pakistan implemented some administrative measures to rationalize imports and improve the external accounts position. The SBP placed restrictions on imports mentioned in chapters 84, 85 and certain items of 87. These restrictions covered about 15 percent of Pakistan’s total imports whereas no restrictions have been placed on 85 percent of imports.

Thereafter, the SBP in coordination with the government identified 8 to 10 business sectors which were genuinely affected and needed relief. They were allowed to import 50 percent to 60 percent of their monthly average import payments made during January to June, 2022, Jameel said.

Similarly, some importers reported cases of demurrages where LCs for imports were opened before the issuance of the SBP restrictions.

He said the SBP in coordination with commercial banks resolved the issue and the backlog of payments was cleared. Further, some relaxations were also given in consultation with industry. Consequently, less than 10 percent of the country’s imports are currently subject to administrative controls. All such restrictions are temporary and will be withdrawn gradually. Petroleum and Pharmaceuticals are among the priority sectors for the SBP. There are absolutely no restrictions on the import of petroleum products or on the import of raw material or inputs related to the pharmaceutical sector, Governor SBP said.

“We recognize that administrative measures on imports must not be continued and we need to relax them gradually. From next year, we may review them and bring more ease to the businesses,” he maintained.

Copyright Business Recorder, 2022