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$533m repayment in May 2013

19 April, 2013

KARACHI: Pakistan is heading towards a difficult situation on its foreign reserves front as it has to pay around $4.8 billion to the International Monetary Fund (IMF) under Stand-by Arrangement (SBA) loan facility till June 30, 2014.

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KARACHI: Pakistan is heading towards a difficult situation on its foreign reserves front as it has to pay around $4.8 billion to the International Monetary Fund (IMF) under Stand-by Arrangement (SBA) loan facility till June 30, 2014.

The rupee and forex reserves would likely come under pressure when Pakistan will make repayment under IMF's SBA loan facility in three equal phases amounting $533 million in May 2013.

Under the conditions where the country's forex reserves stand at around $11.69 billion till April 18, 2013 every week the country has to spend around $500 million under the head of import bills besides arranging dollars for importers for Letter of Credit (L/C), said foreign currency experts.

In early April 2013, forex reserves were at $12.20 billion and on April 18, 2013 they stood at $11.69 billion after a decrease of $510 million.

Pakistan has already paid around $3.24 billion against the total fund of $7.80 billion.

The country has hardly two-and-a-half-month import bill amount, which it has to provide in shape of L/Cs, food import bills, edible oil import bills and crude oil bills. The rupee is likely to remain under pressure because of IMF repayments as the foreign exchange reserves were still declining.

Pakistan is likely to incur around 23 percent more repayment of IMF SBA facility on back of sinking rupee against dollar since last four years, currency experts said. The country acquired the loan in 2008 after fragile economic conditions and for supporting the economy.

Pakistan got a loan of $7.80 billion in March 2008 when the dollar-rupee value was around Rs 64 in open market.

Fazal Ahmad foreign currency experts in Houston said the rupee lost 39 percent of its value against the dollar since March 2008.

If the current poor economic conditions of the country can not be brought under control due to continuous borrowing by government from State Bank of Pakistan (SBP), lowering down foreign reserves, no further direct foreign investment hopes in the next six months and poor law and order situation, the newly elected government would have to go to the IMF for seeking new funds for a stable international rating besides for a stable and credible government to obtain fresh external funding from other international donors.

It's utmost important for the new government to address its dwindling foreign exchange reserves and assure international donors of stable economic conditions. The rupee fell to an all-time low level of Rs 100 against the dollar in the open market in February 2013 due to repayment of $146 million to the IMF under SBA loan facility.

Further payments of more than $1 billion of IMF loan in the remaining slightly more than two months of fiscal year 2012-13 and $3.2 billion in fiscal year 2013-14 do not help the situation either.

Despite an external current account surplus of $250 million in July to December 2012-13, the foreign exchange reserves of SBP have declined to $8.7 billion as on January 31, 2013 from $10.8 billion at end-June 2012.

The move by Pakistan government to choose short-term gains over long-term economic stability has always been risky.

Pakistan has to make an agreement with international donor otherwise pressure on its economy would be imminent. The new government would also take tougher steps to put the economic conditions of the country in shape.

End.


 
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