The State Bank of Pakistan (SBP) has reported a minor increase in its foreign exchange reserves, as the nation desperately seeks to unlock a critical tranche of funding from the International Monetary Fund (IMF).
The central bank stated that its reserves had risen by $66 million to $3,258.5 million as of the week ended February 17, providing an import cover of around three weeks. The net foreign reserves held by commercial banks were reported to stand at $5,468.0 million, $2,209.5 million more than the SBP, taking the total liquid foreign reserves to $8,726.5 million.
China development bank approves $700 million facility for Pakistan
Finance Minister Ishaq Dar has announced that the forex reserves are expected to receive a significant boost in the coming week, as the Board of China Development Bank has approved a $700 million facility for Pakistan. The funds could be deposited into the SBP’s account this week.
Pakistan takes austerity measures in a bid to resume IMF programme
In a bid to resume the delayed IMF programme and avoid default, the Pakistani government has taken a series of steps in the past two months. These measures include adding new taxes, increasing energy prices, and loosening its control on the rupee.
Parliament approved a supplementary finance bill that increases sales tax from 17 per cent to 25 per cent on imports ranging from cars and household appliances to chocolates and cosmetics. People will also have to pay more for business-class air travel, wedding halls, mobile phones, and sunglasses. A general sales tax was raised from 17 per cent to 18 per cent.
Prime Minister Shehbaz Sharif also unveiled cost-cutting measures to save $764 million annually, stating that austerity, simplicity, and sacrifice are the need of the hour.
Concerns over Pakistan’s debt and dollar crunch
Fitch Ratings, a global credit ratings agency, has downgraded Pakistan’s $350 billion economy twice in four months, citing dwindling foreign reserves. Bloomberg data shows that Pakistan has coupon repayments of $542.5 million this year.
In all, the country has $8 billion in dollar bonds debt due by 2051, with the next payment of $1 billion due in April of next year. Most of the nation’s external debt of about $100 billion is sourced from concessional multilateral and bilateral sources.
Pakistan also faces a dollar crunch that tests its external stability, and supply disruptions caused by flooding, food shortages, and IMF preconditions for rescue may push inflation above 30 per cent for the first time on record, according to Bloomberg Economics.