A financial doomsday scenario is looming for Pakistan as International Monetary Fund (IMF) has made a startling revelation about the country’s economy. IMF has said that Pakistan’s net international reserves stand at negative $724 million.
Pakistan supposedly has $12.1 billion in its foreign currency reserves. However, Pakistan owes $13.5 billion in foreign exchange liabilities, which makes the net reserves negative.
The report further adds that Pakistan’s Net International Reserves (NIR) have declined from $7.476 billion in September 2016 to negative $0.724 billion till mid-Feb 2018. The current situation will make it difficult for Pakistan to pay back loans to IMF, World Bank, and other commercial banks.
Post Programme Monitoring Report
IMF released its first Post Programme Monitoring report in which the information about Pakistan’s currency reserves was released.
The report says;
Alongside, risks to Pakistan’s medium-term capacity to repay the Fund have increased. An elevated current account deficit and increased external obligations are expected to double the external financing needs in the next three to five years, which could take a further toll on foreign exchange reserves.
The report says that the risk of repayment and decline in foreign exchange reserves will continue to increase. However, Pakistan needs to review and tighten its monetary policy in order to decrease this risk.
Pakistan aimed to decrease the trade deficit by implementing a strict import policy, however, it didn’t bear much fruit.
Pakistan obtained following loans from several lenders;
- State Bank of Pakistan obtained $5.4 billion in loans through currency swaps.
- $1.03 billion Chinese currency swaps.
- $6.3 billion IMF loans.
- $700 million from commercial banks.
Government recently circulated Eurobond and Sukuk bonds worth $2.5 billion, however, it didn’t help in maintaing a decent sum of foreign currency reserves. If Pakistan fails to attract foreign cash inflow, the reserves may come down to $9.37 billion from the current amount of $12.1 billion.
In this case, IMF has projected a growth of 3% GDP for Financial Year 2018-19. In case, there is a considerable foreign cash inflow, GDP will grow at a rate of 4.7% for FR 2018-19.
IMF projected a budget deficit of 5.5% in the report against Pakistan’s estimate of 5% for the current financial year.
You can read the comprehensive report by IMF on this link.