Rupee decline against dollar: Pakistan finalises deal for $1 bn SAFE deposits from China

ISLAMABAD: At a time of rising pressures on the exchange rate when rupee is continuously on a decline against the greenback, Pakistan has finalised a deal for $1 billion SAFE deposits from China including $500 million in shape of rollover of existing amount and an additional $500 million before June 30, 2018.

The rupee's slided to 121 from Rs 117 against US dollar on Monday morning but afterwards it recovered and stood at 119.

The yawning current account deficit (CAD) and the repayment obligations have eroded the ability of the State Bank of Pakistan (SBP) for intervening into the market to stop the downslide on a more sustained basis. The SAFE deposits from China are known as State Administration of Foreign Exchange (SAFE) which is an arm of POBC (Central Bank) that manages the country’s foreign reserves. The former Governor SBP Yaseen Anwar told The News last month that he had arranged two SAFE deposits during his tenure out of which one was returned and another $500 million is still lying with the SBP.

“The situation is very fluid but the Ministry of Finance is making all out efforts to ensure the inflow of dollars in remaining two weeks. We have finalised a deal of $1 billion as $500 million lying into the SBP will be rollover, while the additional $500 million will be poured into accounts before June 30”, top official at Ministry of Finance confirmed to The News here on Monday.

Another $200 million commercial loan from banks will be finalised as its procedures have already been completed. The Economic Affairs Division (EAD), the sources said, is also making efforts to ensure project inflows from multilateral and bilateral creditors before the end of the outgoing fiscal year 2017-18.

The increasing worry for Pakistan is of repayments to the IMF on account of the loans obtained in the previous years as Islamabad will have to pay $190 million outstanding amount in June (the ongoing month). Another $490 million will be due in the coming fiscal year 2018-19 starting from July 1, 2018 and exactly the same amount will be due for payment to the IMF in September 2018. Similarly, Pakistan will have to pay back $879 million in 2019-20, $1.158 billion in 2020-21, $1.174 billion in 2021-22 and $1.2 billion by 2022-2023.

The IMF has projected a gross financing gap of $24.4 billion for the outgoing fiscal year with the current account deficit projected at $15.6 billion. The current account deficit, which has already crossed $14.2 billion for the first ten months (July-April) period might cross $16 to $17 billion till end June 2018. The IMF projections further show that the available financing stood at $20.7 billion so the remaining foreign currency reserves would be depleted which has already caused a heavy toll on the economy in the outgoing fiscal year.

The spokesman of the SBP stated on Monday that today, the PKR-US$ exchange rate in the interbank market closed at PKR 119.84 per US dollar while witnessing an intraday low and high of PKR 117.00 and PKR 121.50 per US dollar respectively. This movement is based on foreign exchange demand-supply gap in the interbank market.

The market-based adjustment is reflective of the country’s external Balance of Payments position which is under pressure due to a large trade deficit. Despite the continued growth in exports (13.3 percent in Jul-Apr FY18) and some uptick in remittances, growing imports have pushed the current account deficit to US$ 14.0 billion during the first ten months of FY18, which is 1.5 times the level of deficit realised during the same period last year.

The “SBP is of the view that this market-driven adjustment in the exchange rate along with other recent policy measures are expected to contain the imbalances in the external account thereby containing aggregate demand and also facilitate the prospects for generating non-debt creating inflows”, the statement said. The SBP will continue to closely monitor the foreign exchange markets; and stands ready to ensure stability in the financial markets and curb the emergence of speculative pressures, it concluded.