A liquidity crunch to hamper Pakistan’s stability on external front

April 3, 2019 (MLN): GDP growth is slowing sharply, and budget deficits – the root cause of most financial crises are raging. The inflation rate is at five years high, and exports are not picking up. These are the issues that the current government is constantly striving to solve.

Along these issues, Pakistan has to repay $1 billion on Eurobond maturity which was acquired by the PML-N government in April 2014 during the tenure of former Finance Minister Ishaq Dar.

Pakistan had launched $2 billion bond on April 2014, out of which $1 billion was issued on five- year note at a coupon rate of 7.25% and another $1 billion for a period of 10 years at the coupon rate of 8.25%, now that maturity date of five years bond is due on April 15, 2019.

The Government is already crippled with a load of problems on the External Front. Declining remittances, insufficient foreign reserves and the other macroeconomic issues in disciplinary policies have left the country in a quagmire.

While dealing with these issues, another hefty amount of $1 billion repayment will drag down the reserves held by SBP to $9.67 billion, which recently hit the double-digit mark of $10.67 billion on account of $2.2 billion received from china to help Pakistan to tackle its current fiscal woes.

In addition to this, Pakistan will have to repay more than $2 billion at the end of this year in shape of repayments as euro bonds, this will start increasing pressure on external account in the months ahead, making it tough for the government to avoid BOP crisis.

During Jan- March FY19, Pakistan has borrowed around $6 billion in which $2 billion was acquired from KSA, $2 billion from UAE ($1 billion more expected) and $2.2 billion from China. This has led Pakistan’s external debt to currently stand at around $105 billion, out of which SBP has repaid around $1.7 billion in external debt and other official payments..

Keeping in view due payments on foreign loans and bonds this year, the foreign reserves of the country are not sufficient for meeting the obligations, so a liquidity crunch is going to hamper country’s stability on external front.

By considering these facts, the question that arises is that for how long Pakistan will rely on its friendly countries given that the situation is becoming alarming and this may pick up the pace in a few months.

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