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New SDRs allocation: Pakistan can fetch benefit of up to $3 bln

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April 14, 2021 (MLN): In a recent developing story, IMF’s MD Kristalina Georgieva commented that they are going to discuss the issuance of an additional USD650 billion IMF’s quasi currency known as Special Drawing Rights (SDRs), which was welcomed by the debt experts, charity groups and investors across the globe.

The proposal is planned to be presented in the Executive Board meeting in Jun’21 for formal approval.

According to the report by Insight Securities, this could be the highest SDR issuance by IMF since its inception and it would benefit all member countries including Pakistan for the support of global economic recovery from the COVID-19 crisis and vaccination programs.

To note, during the global financial crisis of 2009, SDR182.6 billion was allocated for member countries to provide liquidity to the global economic system, and to supplement official reserves of member countries.

Earlier, during the pandemic, IMF had disbursed USD107 billion to support middle-income countries including Pakistan which face a twin deficit and got around USD1.4 billion under this relief.

As per the quota under IMF, Pakistan holds around 0.426% share in total SDR which suggests that the above development can fetch a benefit of up to USD2.5-3 billion for Pakistan which shall provide much-needed relief for efficient management of external payments (imports & debt repayments), the report highlighted.

On the economic front, Pakistan has witnessed continuous improvement in external position, as a result of which country’s current account balance remained in surplus of USD0.88 billion in 8MY21 as compared to a deficit of USD2.7 billion reported in the same period last year. Recovery in current account position is primarily attributable to stable exports, higher remittances, lower trade/services deficit, and inflows through RDA (Roshan Digital Account) and Naya Pakistan Certificates.

All these factors have strengthened the Pak rupee by about 8.3% from Jun’20 level. Also, Pakistan's current foreign reserves are hovering at around USD13.5 billion (excluding USD2.5 billion recently raised through Eurobonds), which is sufficient for 3 months of import bill. Furthermore, Pakistan has also asked IMF to increase next tranche amount to USD1 billion (previous scheduled for Sept’21 nearly USD0.8 billion),

In the light of the aforementioned developments, if Pakistan opts to take benefit of the issuance of SDR, this will take the country’s cumulative FX reserves to nearly USD16-17 billion by Jul-Aug’21 the report said.

With regards to debt management, the report underscored that it will remain challenging as Pakistan’s total external debt is around USD90.12 billion which is nearly 32% of GDP, and repayment scheduled during FY21 and FY22 is around USD21.5 billion and USD14.7 billion respectively.

Meanwhile, it is important to note that G-20 countries have extended suspension of debt service payment through the DSSI (Debt Service Suspension Initiatives) cumulatively amounting to USD2.5 billion until Jun’21. Pakistan would manage debt repayments through the rollover of an existing facility and remaining to be managed through the IMF’s tranches and issuance of additional bonds in international markets, the report added.

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Posted on: 2021-04-14T10:41:00+05:00

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