Pakistan’s new Prime Minister Shehbaz Sharif is expected to travel soon to China and Saudi Arabia to request urgent financial assistance to
prevent a potential default as US$2.5 billion in foreign loans come due at the end of June and foreign reserves are insufficient to cover the bill.
Ratings said in a report last week that the recent change in government has raised, not lowered, Pakistan’s economic and financial uncertainty amid spiking global commodity prices and rising “global risk aversion” to many emerging markets.
Overall, Pakistan faces $20 billion in external debt repayments through the financial year 2023, with $4.5 billion already rolled over by China and the
United Arab Emirates (UAE). As of February, Pakistan officially had $21.6 billion in foreign-exchange reserves, though much of those funds are inaccessible.
“Higher trade deficits and capital outflows have driven a sharp depreciation of the Pakistani rupee against the US dollar. This, along with debt repayments, has put pressure on liquid foreign-exchange reserves with the State Bank of Pakistan
(SBP), which fell by $5.1 billion between end-February and April 1, 2022, to $11.3 billion,” the Fitch Rating report said.
Monetary Fund (IMF), meanwhile, projects average inflation will hit 11.2% in 2022, up from 8.9% last year. More worrying, perhaps, the IMF estimated Pakistan’s current-account deficit at 5.3% of gross domestic product (GDP), up significantly from 0.6%
last fiscal year.
Uzair Younus, director of the Pakistan Initiative South Asia Center at the Atlantic Council think-tank, told Asia Times that
Pakistan’s near-term financial challenges can be met with an inflow of dollars, either from the bond market or through bilateral deposits by China and/or Saudi Arabia.
“Indications are that this is likely, especially if Pakistan Finance Minister Dr Miftah Ismail has fruitful discussions with the IMF.… Pakistan must get the IMF program back on track, as it will ease uncertainty
in the market and also signal to key partners like Saudi Arabia and China that the new team is committed to making difficult choices to stabilize the economy,” Uzair said.
Pakistan’s newly appointed Finance Minister Ismail rushed to Washington on April 21 to renegotiate a $6 billion Extended Fund Facility (EFF) program with the IMF. The EFF hit a snag under the previous Imran Khan government
for violating the terms of the agreement, including in regard to maintaining fuel subsidies.
In May 2019, Pakistan and the IMF reached a staff-level
agreement on economic policies for a three-year EFF arrangement. Under the agreement, Pakistan was to receive about $6 billion over 39 months in exchange for implementing various market-oriented reforms.
However, so far, it has received only half of that amount because of failure to meet those requirements.