Government consumes $1bln loan in fortnight on debt repayments

ISLAMABAD: Government has consumed one billion dollars of short-term loans taken from Chinese banks within a fortnight to settle repayments of old debts, official said on Thursday.

Minister for Finance Miftah Ismail announced on April 27 that Islamabad had done transaction of $1 billion with Chinese banks as short-term loan after which the foreign currency reserves held by the State Bank of Pakistan (SBP) had swollen to $12.8 billion.

Foreign currency reserves have nosedived to $10.79 billion that could hardly meet import requirements of just two months. In the wake of heavy repayment of foreign loans due in coming months, Islamabad will have to take major steps on urgent basis otherwise looming crisis is now just around the corner exactly at a time when the country will be passing through a political transition on general elections after a couple of months.

The SBP reported that the foreign reserves held by the central bank nosedived to $10.79 billion till May 11, indicating that the increased amount due to fresh loan evaporated in just 14 days.

External debt and liabilities (EDL) soared to $91.8 billion till March. Economists are predicting that the EDL might cross $95 to $96 billion by June-end.

The yawning current account deficit is playing havoc with the economy as it has already crossed $12 billion mark in the wake of increased imports.

Economists termed widening current account deficit as positive sign for growing economy but it requires managing of dollar inflows through non-debt creating avenues.

“We are unable to manage external accounts without debts,” an official said. The investment and savings would have to increase to fuel the economy otherwise the economy of Pakistan would continue to face financing problems in the short to medium terms.

SBP said total liquid foreign reserves held by the country stood at $17,067 billion on 11 May. The break-up of the foreign reserves position showed that the foreign reserves held by the State Bank of Pakistan stood at $10.79 billion. Net foreign reserves held by commercial banks amounted to $6.26 billion.

Officials said the current account deficit would be standing at $14 billion for next fiscal year and amortisation of loan is projected at $5 billion in FY2019. The financing requirement would be in the range of $19 billion in fiscal 2018/19, they added.

The government said its financing requirement would be standing at $21 billion for the outgoing fiscal year ending on June 30 and it would be reduced in the next fiscal year because of slowdown of imports in months ahead.