- State Bank chief says that reserves are expected to increase in the second half of FY23.
- The remaining outstanding payment is approximately $4.7bn.
- He said that there is a need for gradual relaxation in administrative measures on imports.
State Bank of Pakistan (SBP) Governor Jameel Ahmed on Thursday reiterated that all loan repayments are ongoing, adding that the country’s foreign exchange reserves are expected to increase in the second half of the current fiscal year. .
In the latest episode of State Bank’s podcast series, the governor disclosed that separate loans of $1.2 billion to two foreign commercial banks have also been repaid. He said there was an understanding with the banks for the refund but did not give any time frame.
During the podcast, he discussed the country’s ability to meet international financial obligations and addressed concerns about external account risks.
He said around $33 billion was to be repaid to external stakeholders for fiscal year 2023, including $10 billion in current account deficit and $23 billion in debt repayments.
Pakistan has already repaid more than $6 billion of the external debt of $23 billion, while bilateral loans of $4 billion have been repaid with the support of the countries concerned.
A further $8.3 billion in maturing obligations is expected to be settled while negotiations continue, Ahmed said, adding that outstanding payments for the rest of this fiscal year are about $4.7 billion.
This includes $1.1 billion in commercial loans owed to foreign banks and $3.6 billion in multilateral loans.
State Bank has enough reserves
Recalling that Pakistan has received $4 billion in foreign exchange (excluding rollover of $4 billion), the State Bank chief assured that Islamabad would continue to repay loans on time while the current fiscal year. A significant increase in revenue is expected in the second half of the year.
“With the rollover of some external liabilities, Pakistan’s foreign exchange reserves are expected to increase significantly in the coming months.”
It may be noted that during the week of November 28 to December 2, State Bank’s reserves reached $7.9 billion after the recovery of $500 million. Asian Infrastructure Investment Bank (AIIB).
During the week under review, SBP paid $1,000 million against maturing. Pakistan International Sukuk and payment of certain other external debts. Accordingly, of Pakistan Foreign exchange reserves 6.7 billion by December 2, 2022.
Earlier, the central bank paid off two commercial loans worth $1.2 billion. These banks are expected to refinance the same amount in the coming days, bolstering the country’s foreign exchange reserves.
“The government is also in talks with a friendly country to provide a loan of $3 billion and talks are ongoing with multilateral agencies for further financial assistance,” he said.
He clarified that Pakistan’s debt consists of bilateral and multilateral creditors and only a small percentage is owed to foreign banks.
“The State Bank has sufficient reserves to effectively meet all liabilities and the expected inflows will boost foreign exchange reserves,” he claimed, denying reports by various brokerage houses that indicated Pakistan’s imports are only less than a month.
‘The situation is challenging’
Ahmed highlighted the following global issues as major challenges, including:
- War in Ukraine
- Historical rise in international commodity prices
- Monetary tightening by central banks followed.
“As a result, developing countries, including Pakistan, face difficulties in raising funds from the international financial markets,” he said, noting that floods affect the economy on the domestic front, creating challenges.
“The overall situation is challenging. However, the State Bank and the government are taking steps to improve it,” he assured the public.
He explained that at the beginning of the fiscal year, the State Bank had projected the current account deficit to reach $10 billion for FY23, however, as Pakistan was hit by historic floods, this led to some increase in imports. Expectations arose, especially wheat, fertilizer and cotton.
“Additionally, the floods affected the country’s exportable crops and as a result, Pakistan’s current account deficit was expected to widen to $2-3 billion.”
‘Restrictions on imports will be withdrawn gradually’
Ahmad said during the podcast that there have been some significant developments in the international market, including a reduction in the prices of petroleum products. Meanwhile, the SBP has also taken policy measures that will significantly reduce some emissions.
“As a result of these policy interventions and other measures, the current account deficit is expected to remain below $10 billion for FY23,” he maintained.
He recalled that in the last quarter of the financial year 2022-23, the State Bank and the government had implemented some administrative measures to rationalize imports and improve the external account position.
State Bank imposed restrictions on imports. […] These restrictions cover about 15 percent of Pakistan’s total imports while 85 percent of imports remain unbanned.
Thereafter, the State Bank in collaboration with the Government identified 8 to 10 business sectors which were genuinely affected and required relief. They were allowed to import 50% to 60% of the monthly average import payments made from January to June 2022.
Similarly, some importers reported cases of demurrages where import letters of credit were opened prior to the issuance of State Bank sanctions. The central bank along with the commercial banks resolved the issue and the backlog of payments was cleared.
Additionally, some relaxations were given after consultation with the industry, he said, as a result of which, less than 10 percent of the country’s Imports Currently subject to administrative control. He claimed that all such restrictions are temporary and will be withdrawn gradually.
The State Bank Governor said that petroleum and pharmaceuticals are among the priority sectors of the State Bank, adding that there is absolutely no restriction on the import of petroleum products, or on the import of raw materials or inputs related to the pharmaceutical sector. .
He said that the State Bank recognizes that administrative measures on imports should not continue and need to be relaxed gradually. “From next year, the bank can review them and bring more ease of doing business,” he said.