The country has been facing a serious threat from its external front as the State Bank of Pakistan’s foreign exchange reserves fell to single digits despite a $2.3 billion inflow from China late June…writes Sanjeev Sharma
Pakistan could face a serious problem as its foreign exchange reserves are depleting fast amid rising external debt servicing, state media reported.
The country’s external debt servicing rose to $10.886 billion in the first three quarters of 2021-22 compared to $13.38 billion in the entire FY-21, Dawn reported.
It was just $1.653 billion in 1QFY22 against $3.51billion in the first quarter of 2020-21. However, the debt servicing jumped to $4.357 billion in 2QFY22 and further to $4.875 billion in 3QFY22.
The country has been facing a serious threat from its external front as the State Bank of Pakistan’s foreign exchange reserves fell to single digits despite a $2.3 billion inflow from China late June, Dawn reported.
The increasing size of the external debt servicing in each quarter indicates the government has been borrowing dollars at higher commercial rates to meet its foreign debt repayment obligations.
The PML-N-led coalition didn’t disclose the rate at which it had borrowed $2.3 billion from China. Initially, Beijing had agreed to roll over the syndicated loans before the ouster of the PTI government. However, the Shehbaz Sharif administration had to wait for two months to secure the Chinese loan.
The financial sector and other stakeholders of the economy are still not satisfied with the hidden cost of the Chinese loan. The market is full of speculations that Chinese loans were taken at a very high rate, Dawn reported.
Finance Minister Miftah Ismail has been assuring Pakistani people that the release of the $1billion tranche is expected in a few days but three months have passed without a satisfactory reply from the International Monetary Fund (IMF). Bankers believe that the fund is dictating the government like Washington to do more.
Since the IMF has stopped funding, the country is not getting project funding from the World Bank and Asian Development Bank.
A senior analyst said that the Chinese knew that Pakistan was unable to return to the international debt market and the IMF was not in a hurry to help Islamabad. This was the reason for the Chinese lending the money at a very high rate, Dawn reported.
Pakistan has been paying debt servicing through commercial borrowing which means more external debt servicing in the next financial year. The two governments in FY22 could not control the influx of huge imports totalling $80 billion creating a large current account deficit.