Published: 06:33 PM, 30 August 2023
No immediate end to external account woes: Dollar outflows to outpace inflows till December
A man counts US dollars in a money exchange shop. — AFP/File Pakistan’s external woes are going to multiply mainly because the dollar outflows will outpace the dollar inflows till the end of December 2023. Despite signing a $3 billion Standby Arrangement (SBA) programme with the IMF, Pakistan’s external vulnerabilities are going to persist mainly because of shrinking dollar inflows in the form of loans amid increased debt servicing as well as import requirements, if the Letters of Credit (L/Cs) are opened up without any interruptions.
So, the pressure to maintain foreign exchange reserves held by the SBP is going to mount in the weeks and months ahead. If more dollar inflows could not materialise, it would result in depletion of foreign exchange reserves.Official data and background discussions held with top functionaries of the economic ministries reveal that the total outstanding external debt servicing would be $952 million in September 2023, including the principal and markup amounts. This debt servicing is projected to consume $5.6 billion in the second quarter (Oct-Dec) period, out of which $3 billion in deposits from the Kingdom of Saudi Arabia would also become due. It is expected that it might be rolled over.
But the question is if the remaining $3.6 billion have to be repaid out of a total of $6.6 billion from September to December 2023.
On the other hand, the projected dollar inflows in the form of programme loans, projected loans and commercial loans are on the lower side, despite the fact that everything materialised within the desired stipulated timeframe. First, the World Bank is projected to provide $700 million in loans under RISE-II, along with co-financing of $250 million from the Asian Infrastructure Investment Bank (AIIB). However, the sources said that in reality, the World Bank will approve and disburse $350 million under the RISE-II programme loan if Islamabad fulfils all conditions in the second quarter of the current fiscal year.
Pakistan is also securing $100 million from the Kingdom of Saudi Arabia (KSA) in the form of an oil facility, and this SOF is going to expire probably in November 2023. So, the Saudi Fund for Development (SFD) is going to disburse $400 million until the end of November 2023. It is expected that it will be approved and disbursed until November 2023. The Islamic Development Bank (IsDB) is projected to disburse $100 million, out of which $97 million has already been disbursed. OFID is projected to disburse $27 million for the Mohmand Dam.
In the pipeline and wish list, there is another $300 million loan programme from the Asian Development Bank’s (ADB)-funded Domestic Resource Mobilisation (DRM), which was planned to be approved and disbursed until the end of November 2023. The DRM subprogram-1, worth $300 million, is designed to lay the foundation for policies, laws, and institutional capacity to improve domestic resource mobilisation, which is the process through which countries raise and spend domestic resources efficiently to facilitate productive investments and better service delivery.
The Government of Pakistan has completed all prior policy actions of Subprogram 1, which is expected to be approved by the Planning Commission’s CDWP in the coming month. The ADB Board is expected to approve and disburse this programme by November 2023. But there are still some gaps that remain unfulfilled, so the completion of all prior actions, including seeking approval from the CDWP, will set the stage for getting approval from the ADB.
There is no possibility of launching any international bonds, despite being budgeted by Islamabad for the current fiscal year. Pakistan also plans to raise $3 billion through commercial loans, so Pakistani authorities will have to rely on this expansive mode of financing in the first and second half of the current fiscal year. This commercial loan markup will be on the much higher side.
Pakistan is also expecting the completion of the first review in December 2023 under the $3 billion SBA programme and the disbursement of $700 million. There is another worrisome development: the current account deficit resurfaced again and stood at $1 billion for July 2023. If it strikes back into deficit mode and on average remains at $500 million, then the overall requirement of dollars will increase in the months ahead.
>> Source: The News
