The State Bank’s foreign exchange reserves plummeted by $397 million in the week that concluded on July 19, making it challenging for the government to maintain reserves at about $9 billion prior to a further loan arrangement with the IMF.
The State Bank claims that the fall in reserves to $9.027.2 billion was caused by repayments of external loans. The nation is having a difficult time paying down its massive foreign and internal debt.
Since they have already exhausted the majority of the available sources of funding, economic management are facing challenges in meeting the $24 billion requirement for foreign debt payment in FY25.
Currently, Chinese investors and Finance Minister Muhammad Aurangzeb are discussing a loan rescheduling. The Chinese government has already received a letter from the prime minister for review.
The ministry of finance is working to reschedule a $15 billion energy loan. Financial industry insiders claimed that Chinese businesses were offended by media stories that blamed them for IPP-related issues.
Concern has also been expressed by the Chinese over the $1.8 billion in earnings that have not yet been paid.
According to reports, Mr. Aurangzeb would have to bring up concerns over China’s debt, which is presently valued at Rs. 500 billion, in the energy sector.
China has invested $21 billion in 21 energy projects in Pakistan.
Pakistan is requesting that the 10-year debt payback period be extended to 15 years. This would lessen the $700 million anticipated foreign exchange loss.
Experts in the financial industry and certain commentators think that the country’s future depends on the Chinese energy loan being rescheduled. They think that before finalizing the $7 billion deal for Pakistan, the IMF is prepared to postpone the Chinese loan.
Pakistan would not be able to arrange $24 billion for debt service in FY25 without rescheduling.
While prospects for bilateral loans remain dim, the government is still unable to access the global bond market in order to issue bonds and raise money.
Billions of dollars have already been deposited by Saudi Arabia and the United Arab Emirates to the State Bank, while China has rescheduled certain payments for FY24.
The central bank’s $397 million reserve drop, according to currency analysts, will make the exchange rate weaker. They were concerned that more outflows may impact the steady exchange rate.
The entire amount of liquid foreign reserves as of July 19 was $14.335 billion, of which $5.308 billion was held by commercial banks.