ISLAMABAD: A National Assembly panel sought on Friday details of $6.2-billion worth of short-term borrowings by the State Bank of Pakistan (SBP) amid its concerns that the regulator may resort to freezing foreign currency accounts due to the precarious position of official foreign currency reserves.
The National Assembly Standing Committee on Finance directed the Ministry of Finance to share details with parliament. The committee was briefed by Economic Affairs Division Secretary Arif Khan about the loans disbursed during the last four and a half years and debt repayments-related obligations in the next five years.
Pakistan has to repay $6b foreign debt in six months
The committee was also informed that under the China-Pakistan Economic Corridor (CPEC), Pakistan has booked $2.1 billion as debt and $25.11-million interest on this debt has already been paid.
The EAD secretary was of the view that over $6 billion that the central bank borrowed under the currency swap arrangements were part of the $7.5 billion foreign commercial banks loans the PML-N government obtained after coming into power.
However, these currency swap loans are not part of foreign commercial borrowings.
As of November this year, the central bank borrowed $6.16 billion from commercial banks under the forward and currency swap arrangements, according to SBP data. This amount is also shown part of both the central bank and commercial bank’s reserves.
To bring clarity on the issue, the Standing Committee asked the Ministry of Finance to share these details.
Pakistan Tehreek-e-Insaaf MNA Asad Umar warned about the danger of freezing the foreign currency accounts by the central bank due to the growing external financing gap, caused by the higher-than-anticipated current account deficit and mounting repayments of foreign loans.
Due to a visible threat posed by $15 billion to $16 billion financing gap and invisible threat posed by $6 billion currency swap borrowings by the SBP, there is a danger that the SBP may freeze foreign currency accounts, said Umar.
In 1998, the then PML-N government had consumed foreign currency deposits of commercial banks after global powers imposed sanctions on Pakistan in retaliation to nuclear tests.
The PTI MNA said that the official foreign currency reserves are on the sliding path and out of the $2.5 billion that the PML-N government borrowed through issuance of bonds hardly a month ago, over $1 billion has already been consumed.
As of December 22, 2017, the SBP’s official foreign currency reserves were $14.133 billion including $6.16 billion worth of currency swaps and forward contracts.
Earlier this month, the SBP Governor Tariq Bajwa had said that Pakistan faced an external financing gap of around $12 billion in the current fiscal year. But a day later, the SBP spokesman clarified that the gap was only $2.5 billion without substantiating the claim.
The EAD secretary informed that the PML-N government obtained $34.2 billion loans from June 2013 till October 2017, excluding $2.5 billion bonds floated last month. He said that $23.2 billion of the disbursed loans were utilised in repaying the previous loans.
Had the loans been diverted to a productive sector of the economy, the country’s external sector would not have been in a mess today, said Umar. The EAD data showed that most of the $34.2 billion loans were meant for budget financing.
The EAD secretary said that Pakistan’s total external debt repayments for the current fiscal year stand at $6.1 billion and out of that $2.4 billion has already been returned. The EAD data showed that Pakistan needs $31.4 billion more in the next five years just to service the already obtained loans. This is exclusive of the amounts required to service publically guaranteed debt and the private sector debt.
For fiscal year 2018-19, the EAD has estimated external debt servicing at $6.4 billion, for 2019-20 $6.9 billion, for 2020-21 $4.4 billion, for 2021-2022 $5.2 billion and for 2022-2023 $4.2 billion.
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A spokesman of the finance ministry also said on Friday that external public debt repayment obligations for Pakistan are not more than an average of $5 billion per annum until 2022. Keeping in view the track record of the country, this amount of repayments should not raise any concern as Pakistan has successfully met higher repayment obligations even with much lower volume of foreign exchange reserves in the past, he added.
Furthermore, external inflows are expected to be sufficient to meet repayment obligations, the spokesman said.
Published in The Express Tribune, December 30th, 2017.
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