With Pakistan’s foreign-currency reserves falling 29% this year to US$12.6 billion by the end of October and the country’s trade deficit ticking ever upward, Islamabad has found itself back at the International Monetary Fund (IMF) to discuss a bailout.
First on the IMF’s checklist is devaluation of the Pakistani rupee. The State Bank of Pakistan (SBP) loosened its grip on the currency on December 8, resulting in a downward adjustment in its exchange rate in interbank and open market transactions. It quickly shed over 5% against with the US dollar. Discussions regarding policy-level measures are ongoing.
Pakistan’s economy had already been showing signs of floundering before it was reported in August that the central bank had borrowed $5.81 billion from commercial banks under “forward and currency swap” arrangements to boost its reserves position and stabilize the currency. Excluding those loans, Pakistan’s actual foreign currency reserves would stand at a mere $6.79 billion. And they should be excluded, because they are not usable in any sense.
“The SBP did not deny the media reports, nor did the government issue any clarification which [disputes] the apprehension that the economy has gone haywire,” a senior executive at a Dubai-based exchange company told Asia Times. Pakistan’s reserves position was particularly alarming, he added, in light of the World Bank’s estimate, in October, that Islamabad will need $17 billion worth of external financing in the fiscal year ending June 30, 2018, to service its debt payments and current account deficit.
“How the government will honor its external commitments needs to be explained,” he said, adding that as far as any IMF package is concerned, it will come with painful strings attached (for one thing, devaluation means inflation). Any “stopgap” measures, he said, would make little impact on a current account deficit of $14.4 billion, or subdue an import growth rate of $5 billion per month on the back of China’s “Belt and Road” infrastructure drive.
Excluding those loans, Pakistan’s actual foreign currency reserves would stand at a mere US$6.79 billion. And they should be excluded, because they are not usable in any sense.
At the end of last month, the government launched Sukuk (Islamic bonds) and Euro bonds worth $2.5 billion, at a profit rate of 5.6% and 6.8%, respectively, again to prop up its reserves. It claimed the bidding reflected “overwhelming confidence of the global investor in Pakistan’s economy.” Independent financial analysts remained skeptical, however.
The SBP, in justifying its deregulation ploy last week, declared: “The continuation of high growth in imports led to a widening of the current account deficit, and consequently to depletion in the country’s foreign exchange reserves. These pressures have persisted, leading to an adjustment in interbank exchange rates. This movement in the exchange rate is based on demand and supply of foreign exchange in the interbank market.”
Speaking at a meeting of the Pakistan Society of Development Economists on Wednesday just after the rupee slid against the dollar, SBP governor Tariq Bajwa said the exchange rate would be determined from now on by “market forces”. The aim, he said, was for the currency to attain “equilibrium.”
In the days since, however, Peshawar’s Chowk Yadgar currency market has been directionless, with exchange companies and currency dealers hesitant to do any deals around buying or selling dollars.
Ahmdi’s Fear
Idea of Pakistan was not thought through.
Every one jumped on ‘Islam in danger’ tonga.
Results are for every one to see.
It is high time that Pakistan make up with India and seek financial help from India.
Immediate returns will be in reducing or practically eliminating Pakistan’s defense budget.
That will be huge saving and Pakistan will rise again financially.
Trust me that Pakistan will not be in danger and infact it never was.
See what Mr. ZA Bhutto has done to Pakistan in the name of Islam.
Don’t underestimate Pakistan" it has been promised by China an Asian economic Tiger status in a short time provided it strictly follows China’s guidance! China can not afford to let Pakistan down! That is why it is pushing on with CPEC.
Why can’t Pakistan beg from their all weather friend China in time of crisis. Chinese have no intention of helping them rather than profit making investments and when it cannot repay it will colonise those lands. Now Pakistanis should atleast think logical rather than blind belief to Chinese.
USA up to its usual tricks of using its fiat dollar status to attack Pakistan’s finances.
They tried it on Russia which responded by raising interest rates, diversifying its trading partners and abandoning the U$. Short term pain for long prosperity.
In the meantime Pakistan should raise its toll on US logistics traffic through its territory
We should all be concerned about Pakistan’s economy. If Pakistan get destabilized and for certain the Pakistan military has no other option than using the The 111th Infantry Brigade to keep law and order, as we have seen before. For the US alleged “war on terror” it would be very unfortunate if the poverty increases and we see more radicalization. Important, Pakistan try to help itself by fighting corruption.
Foreign companies controlling strategically important infrastructure, like telecommunication, should be owned by Pakistanis. Norwegian Telecom company Telenor, is an alleged CIA front and should not get any new telecom licenses? Telenor is kicked out of Russia (Vimpelcom), India, and has interfered in domestic politics in other nations.
The US military aid to Pakistan has enabled Pakistan to build a formidable nuclear arsenal that might end up in the wrong hands. Ex-CIA expert Bruce Riedel believes there is an agreement between Saudi Arabia and Pakistan, to supply the Saudis nuclear warheads. Pakistan could become more dangerous than the Rocket man in North Korea if the economic meltdown is not stopped.
A failed nation and that can only beg for more money and blackmail US, China and India etc that they will be more dangerous as a failed nation – jihadi network will get weapons etc. Pakistan today is a rogue nation, on par as freelancing mafia with gun in one hand and a begging bowl in another. China will use them for dirty work only and will not bail them out.