EDITORIAL: Prime Minister Shehbaz Sharif informed the federal cabinet that the United Arab Emirates (UAE) has rolled over 2 billion dollars parked with the State Bank of Pakistan (SBP) to shore up our foreign exchange reserves and thereby provide support to not only the external value of the rupee but also to enable the government to demonstrate to the International Monetary Fund (IMF) that the pledged rollover has been agreed.
The decision by the UAE was announced less a few days before the expiry of the rollover and hence it stands to reason that there has been no enhancement in the 11,710.5 million dollar foreign exchange reserves noted on the SBP website on 27 December 2024.
Saudi Arabia had announced its decision to roll over term deposits of 3 billion dollars for another year on 5 December 2024, a day before the expiry on 6 December 2024, a deposit that was initially signed with the SBP in 2021 or, in other words, three years down the line Pakistan has yet to phase out its reliance on external borrowing.
The federal finance minister, Muhammad Aurangzeb, publicly stated in August last year during his interaction with the Senate standing committee that the sum total of rollovers to Pakistan by the three friendly countries was 12 billion dollars and hence one may assume that the Chinese rollover amount is the highest - 7 billion dollars - and it is critical that the Chinese government announces its decision to roll over the entire amount prior to the expiry date reportedly in March this year.
The obvious disturbing conclusion is that with rollovers of 12 billion dollars as acknowledged by Aurangzeb the foreign exchange reserves of 11.7 billion dollars indicate that they are not largely but entirely debt-based and hence the claim by the Monetary Policy Committee, chaired by Governor SBP, in its 16 December 2024 statement, that the “surplus in the current account, along with the improved foreign investment inflows, helped build up SBP’s FX reserves, despite weak official inflows” muddies the waters by not baldly stating that the foreign exchange reserves are not due to improved earnings from the desired sources – remittances and exports. And therein lies the crux of the economy’s continued fragility.
The 10 October 2024 IMF staff-level agreement documents state that “structural fiscal policy weaknesses and repeated boom-bust cycles have increased external financing needs and depleted buffers, leaving a narrow path to fiscal and external sustainability.
To build on the hard-won transient stability created over the past year, sound policies and reforms need to be strengthened and sustained.” The key words are “depleted buffers” and “transient stability” and claims of having achieved stability by senior members of the cabinet must be seen in the context of these two observations.
The IMF document further claims that “the authorities believe that their commitment to sound policies can catalyze new multilateral and bilateral financing and restore market access.” Needless to add, the three friendly countries who have rolled over loans have indicated their resolve not to extend any loans or rollovers unless Pakistan is on a rigidly monitored IMF programme while access to the budgeted 6 billion dollar market loans has not materialised yet because of Pakistan’s continued poor ratings, making the interest payable unaffordable.
Aurangzeb also stated last year that the IMF had requested a rollover for the duration of the 37-month-long programme though the friendly countries are hesitant to extend the rollover for more than a year. In short, there is absolutely no room for complacency and sadly members of the Executive continue to claim success in acquiring even more loans that have reached a level where repayment requires incurring even more loans.
Claims of a general economic improvement raise expectations of higher subsidies amongst the general public, the manufacturing and agricultural sectors which the government has pledged to the IMF not to extend during the programme duration.
One can only hope that the government undertakes measures that require a massive belt-tightening by the major recipients of current expenditure for the ongoing year as well as the next which alone has the capacity to gradually reduce our reliance on external and internal borrowing.
Copyright Business Recorder, 2025