$785m debt payment amid falling reserves

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The State Bank of Pakistan – File photo
The State Bank of Pakistan – File photo

KARACHI: The repayments of $785 million to International Monetary Fund (IMF) over the next two months may have serious implications for the country.

The next elected government that is expected to take charge by mid of May, will find the foreign exchange reserves at dangerously low level.

The State Bank said on Wednesday that it would pay $143.7m on Thursday as repayment to IMF under the standby agreement.

The standby agreement was signed by the previous government five years back and since then the country showed strength on external front.

The reserves of the country started increasing during the five years and reached a peak of $18.294 billion in July 2011.

However, the poor economic growth, low export growth, sharp decline in foreign investments and repatriation of foreign investments squeezed the reserves.

The State Bank said the next installment to IMF would be paid on 1st April that would be SDR71m (approximately $107m at the current rate). Another payment is due on May 10 that will be of SDR95m (or $143.7m). The largest payment within next two months will be SDR258.42m (approximately $390m) on May 24.

The total outflow would be equal to $785m that would further squeeze the reserves, particularly the forex holdings of the State Bank, which stood at $7.45 billion on March 21, 2013.

The outflow would put the next government in serious problem in its initial days. This would be an emergency-like situation to avoid default on external front that requires immediate help from the IMF.

Initiating a dialogue with the IMF for securing fresh credit line would be a big problem for the next government.

The problem could be acute if the rising current account deficit continued to take a shape like it was in the previous fiscal. The previous fiscal year witnessed a current account deficit of $4.6bn.

The current account deficit in the first eight months of this fiscal stood at $700m, which is much smaller compared with $3.235bn in the same period last year.

The caretaker government would not initiate dialogue for loans from IMF or any other donors as it is out of their ambit and the IMF would not hold negotiations with the interim setup.

Analysts and currency experts said the expected fall in the foreign exchange reserves would weaken the rupee. The local currency lost about 58 per cent against the US dollar during the last five years.

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