Foreign Reserves Depleting Rapidly Despite Receiving 94% of Budgeted Loans in 8 Months

Pakistan provisionally received $7.608 billion i.e. 94 percent of budgeted estimates of foreign assistance from multilateral and bilateral donors in the current financial year (July-February) 2017-18. The country had received $4.87 billion during the same period (July-February) of 2016-17.

The Economic Affairs Division (EAD) data revealed that government did not borrow from foreign commercial banks in February. The government has signed short-term commercial loan agreements of $1.917 billion in the current fiscal year 2017-18 so far with different foreign banks. $1.78 billion of this amount have been received so far against the budgeted $1 billion for the entire current fiscal year.

The government also generated $2.5 billion by issuing Eurobonds and Sukkuk bonds, which helped in foreign exchange inflow in the current financial year.

The government has budgeted foreign assistance of $8.094 billion for 2017-18 including $7.692 billion loans and $401.78 million in grants. EAD data shows that foreign assistance of $259.97 million was received in February, from multilateral and bilateral donors.

China disbursed $1.129 billion in the current fiscal year (July-February) 2017-18 (including $71.88 million in February) against the budgeted $1.595 billion for the entire year. It released $62.55 million for Sukkur-Multan (Peshawar-Karachi motorway) under the China Pakistan Economic Corridor (CPEC) in February and $9.34 million for the Neelam Jehlam hydropower project.

Asian Development Bank (ADB) disbursed $546.54 million in the current fiscal year 2017-18, including $48.92 million in February, against the budgeted estimates of $1.221 billion.

International Bank for Reconstruction and Development (IBRD) issued $98.69 million, including $1.28 million in February, against the estimated $60.65 million, IDB(S-Term) sent $873.96 million including $83.62 million in February against the estimated $1.550 billion, Asian Infrastructure Investment Bank (AIIB) disbursed $17.01 million, International Development Association (IDA) sent $220.58 million including $28.50 million in February against a total of $975.27 million and Islamic Development Bank (IDB) disbursed $55.72 million.

Among countries, Japan sent $73.93 million, Saudi Arabia disbursed $40.24 million, UK released $134.70 million of grant, and USA released $42.91 million in the current fiscal year 2017-18 including $7.28 million in February against the budgeted estimates of $117.56 million.

The government has received no assistance from Italy, Korea, Norway, and UNDP during the current fiscal year (July-January) 2017-18.

The government procured $500 million in commercial loans from Industrial and Commercial Bank of China Limited (ICBC) and $32.66 million from Standard Chartered Bank (SCB)-London in January 2018. The government procured $500 million commercial loans from Industrial and Commercial Bank of China Limited (ICBC) in October 2017.

The government had signed an agreement for procuring $200 million in commercial loans from Standard Chartered Bank (SCB)-London on October 31, 2017 and procured the entire amount including $32.66 million in January.

An amount of $255 million was procured from the Credit Suisse-led consortium of banks in the current fiscal year 2017-18. The consortium consists of Credit Suisse AG, United Bank Limited and Allied Bank Limited. The country procured $267 million in commercial loans from Citibank for budgetary support and $55.86 million from Dubai Bank in the current fiscal year.


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Depleting Foreign Reserves

Despite all these loans and receiving the majority of its allocated foreign assistance in the current fiscal year, Pakistan’s foreign currency reserves held by the State Bank of Pakistan (SBP) continue to decline. It has left the government with no option but to use policy changes for allowing adjustments in exchange rate to halt depletion of reserves at a rapid pace.

Pakistan requires a breathing space of $5 to $7 billion to keep its foreign currency reserves afloat, as the current outflow of reserves could put the country in a crisis within months. Rupee has already depreciated twice against dollar in the last four months, and Pakistan’s public debt has jumped up by at least Rs 830 billion due to the fluctuations in the exchange rate. Debt servicing is also expected to increase in the fiscal year ending on June 30, 2018.

The country’s gross reserves stood at $12.7 billion last month while foreign exchange liabilities crossed $13.496 billion so net reserves were standing negative $724 million, stated IMF in its latest report. Pakistan immediately requires $6 to $10 billion in foreign reserves to avoid a crisis.


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