SBP Reserves to Fall Below $2 Billion in September: Miftah

Ex-Finance Minister Miftah Ismail warned that foreign exchange reserves held by the State Bank of Pakistan (SBP) will fall below $2 billion by end-September with the economic situation to be very difficult in the coming months.

He made these remarks while talking to businesspeople at the German consulate on Wednesday. He said the current economic crisis is “not like the old recessions we had”, reported Dawn.

Miftah declared that Pakistan must pay $3.7 billion in debt amortization and $400 million in interest payments over the next two months.

With the $7 billion International Monetary Fund bailout on hold for months, the SBP reserves have fallen to $4.4 billion. The dollar outflow in the next two months is estimated at $4.1 billion, while the total reserves parked in central bank coffers are only $4.4 billion.

The former finance chief mentioned that $1 billion of the total forex reserves is a SAFE deposit from China – cash that the Chinese central bank has deposited with SBP. China will likely roll it over once again, raising the total expected outflow to $3.1 billion. Islamabad also owes $1.5 billion to two Chinese banks, which may again approve a rollover, but the process will take time.

“The Chinese have a different way of re-rolling loans. You write a cheque to them and they keep (the money) for a month and then they reroll. So by Oct 1, we’d probably have less than $2bn. How long we can survive after that, only Allah knows. Things will get very difficult for Pakistan temporarily,” Miftah warned.

Domestic debt servicing, according to the former finance minister, is out of control. He lambasted provincial authorities for showing little interest in raising revenue by taxing real estate, agriculture, and services.

At close, Miftah reaffirmed that the country must create a province from each division to ensure fiscal authority is devolved at the grassroots level. He remarked that competition among three dozen provinces will result in significant improvements in governance.