Pakistan’s journey from $6b to over $15b

Published: October 14, 2015


PHOTO: AFP A file photo of State Bank of Pakistan. PHOTO: EXPRESS

After almost half its term at the helm, Pakistan Muslim League-Nawaz (PML-N) still continues to fend off allegations of election rigging and dismissive remarks over the country’s economic performance. While the government blows the trumpet of increasing foreign exchange reserves, critics tend to be indifferent over the progress as well, terming most of it as plagued with debt and borrowing.

Inflows and outflows of funds on a daily basis make it impossible to ascertain the exact share of borrowed money in foreign exchange reserves.

But a quick look at the timeline and accompanying notes reinforces the popular view that the increase in SBP-held foreign exchange reserves is mostly on the back of money that the government has either raised from global investors or borrowed from international financial institutions.

In addition to total disbursements amounting to $4.5 billion from the IMF since 2013, Pakistan has also raised at least $3.5 billion from the international bond market by floating Sukuks and Eurobonds.

In its many reports on the economy, the SBP has made it abundantly clear that it is not particularly fond of the government’s approach to shore up foreign exchange reserves on borrowed funds.

It should be noted that repayments to the Paris Club — following the debt rescheduling of December 2001 – are set to begin in 2016-17 whereas IMF repayments will start from 2017-18. It is against this backdrop that the SBP believes shifting financing away to non-debt creating inflows (i.e. foreign investments) is a must to strengthen the country’s debt servicing capacity in the future.

“A sustainable solution requires narrowing the FX gap with real earnings from exports and/or remittances, rationalisation of imports, and curbing smuggling,” the central bank advised the government in one of its recent reports.


June 2013

Nawaz Sharif-led PML-N promised an economic turnaround. But the external sector was in the doldrums already, with the country having exhausted about one-quarter of its liquid foreign exchange reserves in the past 12 months. That was mainly to pay the external deficit of $2 billion along with International Monetary Fund (IMF) repayments amounting to $2.5 billion.

The result was a massive drop in foreign exchange reserves held by the SBP: from $10.8 billion at the start of 2012-13, they stood at just above $6 billion by the end of the fiscal year.

The dire situation on the external-sector front left PML-N’s economic wizard Ishaq Dar with no choice but to seek help from the IMF – the lender of last resort.

Wooing the IMF made sense: once a country is under the IMF wings, it becomes easier for it to borrow funds from other international financial institutions (IFIs) to shore up its reserves.

Read: Foreign exchange: SBP’s reserves clock in at $15.202b

September 2013

Pakistan entered a three-year IMF loan programme of $6.64 billion in the first quarter of 2013-14. With the Washington-based lender pledging to bail the country out, chances of a balance of payment crisis were now minimal and a default on international payments was definitely out of the question.

But that didn’t mean the situation on the external sector was firmly under control. The IMF programme was “not frontloaded,” meaning Pakistan was going to receive funds from the IMF in equal quarterly tranches provided the country stuck to the reforms agenda set by the IMF.

There were no Coalition Support Fund (CSF) disbursements during the quarter while external debt servicing amounted to a massive $1.8 billion. According to the SBP, there was a net drawdown of $1.3 billion in July-September from SBP reserves, which was three times larger than the decline seen in the same quarter of the preceding fiscal year.

December 2013

Foreign exchange reserves were not that high to begin with and the situation became worse during November because Pakistan had to repay $725 million to the IMF. The SBP-held foreign exchange reserves touched their lowest point ($3 billion) since 2000-01 in the second quarter of 2013-14.

However, slight improvement took place towards the end of the quarter, as the country received the second tranche of $554 million from the IMF. Times ahead seemed promising now that the “lumpy repayments” to the IMF on account of a previous loan under the stand-by agreement were over. Going forward, repayments to the IMF would now be largely offset by disbursements from the IMF.

March 2014

The SBP could now state confidently that the pressure on the country’s foreign exchange reserves had finally “started to ease” post-December 2013, thanks in part to a “lumpy inflow” of $1.5 billion from an Arab country in March.

Pakistan’s foreign exchange reserves increased $1.8 billion in the third quarter of 2013-14 as opposed to a decline of $1.6 billion in the same three-month period of the preceding fiscal year.

June 2014

The three-month period ending on June 30, 2014 witnessed the largest expansion in the SBP-held foreign exchange reserves on a quarter-on-quarter basis in recent years.

Entering the global bond market after seven years, Pakistan sold sovereign bonds to generate $2 billion from international investors in April. Furthermore, the government sold the long-due 3G/4G spectrum licences, giving another boost of $517 million to reserve in the same month.

Pakistan received another $1 billion from the World Bank and $375 million as part of the CSF in May, bringing the total SBP-held reserves to $9.2 billion, up 73% from March 2014.

September 2014

The surge in SBP-held foreign exchange reserves for two consecutive quarters took a breather in the first three-month period of 2014-15.

Although the country received $735 million under the CSF in July-September, the retirement of $1.5 billion of external debt — coupled with delays in the fourth review of the IMF programme and political uncertainty owing to the sit-in by an opposition political party – resulted in a net decline of 4% in the SBP-held foreign exchange reserves.

Read: Foreign exchange: SBP’s reserves dip below $13.5b

December 2014

The government issued an Islamic bond (Sukuk) in the international market worth $1 billion during the quarter. While a sharp drop in global oil prices was reducing the country’s oil import bill, the resumption of disbursements from the IMF after its fifth review of the loan programme further strengthened the external sector.

March 2015

Although Pakistan received an inflow of $717 million in February under the CSF, a number of budgeted inflows did not materialise in January-March. These include $3 billion from ADB, IDA and China. Therefore, repayments exceeded the total disbursements in the three-month period ending on March.

June 2015

SBP-held foreign exchange reserves surged 17% over the quarter ending on June 30 due in part to the divestment of SBP’s stake in Habib Bank in April.

Reserves went up by almost 4% in the same month following the receipt of $538 million from multilateral, bilateral and other sources, including $498 million received from the IMF.

September 2015

Foreign exchange reserves held by the SBP increased $772 million in July because of the receipt of $756 million from the World Bank.

Despite official inflows of $418 million, including receipts of $337 million under the CSF, SBP-held reserves remained almost flat on a quarter-on-quarter basis.

October 2015

The second quarter of 2015-16 began with a massive inflow into the SBP-held foreign exchange reserves, which rose by $1.8 billion on October 2. The SBP received $505 million from the IMF, $500 million as proceeds of the Pakistan International Bonds, $376 million under the Coalition Support Fund (CSF) and $263 million as syndicate financing for the government of Pakistan.

Published in The Express Tribune, October 14th, 2015.

Like Business on Facebook, follow @TribuneBiz on Twitter to stay informed and join in the conversation.

Facebook Conversations

Reader Comments (13)

  • Prada
    Oct 14, 2015 - 8:42AM

    Add a few numbers, bring to a boil while stirring well. Add mirch, masala and serve hot. That is the recipe for cooking the Pakistani Numbers soup.Recommend

  • blue
    Oct 14, 2015 - 9:59AM

    That’s not all that bad. To bring the external account from brink of default to record high reserves is no small feat. Yes it was done through a combination of IMF loan, international debt borrowing and engaging World Bank / ADB windows but a developing country needs agency funding which is concessional and the debt borrowing established Pakistan’s presence in the market. The 3G related flows in Pakistan was foreign investment as was the HBL divestment and also close USD 300 Million received from UBL divestment. So foreign investment has been coming in and it stands to logic that investors needed a better reserves position before they come in again. If now the foreign investment come in, you can blame the government, but over all, this is not bad at all.

    On top of this, S&P, Moodys have both upgraded rating for Pakistan. That’s as official a stamp as one can get for positive economic trajectory.Recommend

  • Saleem
    Oct 14, 2015 - 11:00AM

    @blue , what a wonderful feat. Though , do remember these would need to be repayed with high interest. This government would have been gone by the time we realize this and they would be already settled in their plush foreign homes. The brunt would be borne by this very poor public who is shouting day and night to bring the crooks into power.Recommend

  • Pakistan
    Oct 14, 2015 - 11:20AM

    Pakistan’s decline from Rs 5 for Dollar to Rs 105 for one Dollar.Recommend

    Oct 14, 2015 - 1:54PM

    privatizing steel mill and PIA as well as PEPCO until and unless it is done country will never get out of the shackles .Recommend

  • Cruiser
    Oct 14, 2015 - 2:11PM

    Real test will start when Pakistan have to pay back the borrowing from 2016- 2017. N league would be at its election year and would have to show its performance to the public.WE only pray that International Oil prices would remain low and GEn Sharif would bring down the Terrorism at minimumm.Recommend

  • Asok
    Oct 15, 2015 - 2:29AM

    Wall of text. You could have put all this information into the graphic.Recommend

  • Naresh
    Oct 15, 2015 - 4:12AM

    @Pakistan:Pakistan’s decline from Rs 5 for Dollar to Rs 105 for one Dollar.
    At Independence 15-08-1947 the Exchange Rate was US$ 1.00 = Pakistani Rupee 3.30

  • Humza
    Oct 15, 2015 - 5:52AM

    @Pakistan: The decline has been halted since the rupee has remained stable since PML N has come to power. Much of the devaluation of the rupee happened before but now finally international investment houses are positive on Pakistan. Great to see the reserves and outlook is better!Recommend

  • Attorney Tausif Kamal
    Oct 15, 2015 - 7:40AM

    One glaring omission. The $1 + billion gift from Saudi Arabia was not included in the equation by the author. Also not mentioned was the huge chunk of FX expenditure incurred by our armed forces for purchases of sophisticated, costly weapons, development of nuclear weapons, missiles and cost for external covert activities.Recommend

  • Khan
    Oct 15, 2015 - 9:31AM


    high interest? Do you know what the interest rate is? And tell me, what is the alternative to no loans? Should we get by with only a couple billion dollars? Do you know that will impact Pakistan’s credit worthiness, which will itself result in higher borrowing costs for Pakistan? Yes, these loans have interest now. But it helps prevent us from paying an even higher interest rate later. Recommend

  • AHK
    Oct 15, 2015 - 10:37AM

    Article does not give figures for narrowing of trade deficit due to a sharp drop in oil prices..if oil prices had remained the same where would we be standing at now?

    Also at quarter ends when it has to report foreign exchange figures SBP has in the past shored up the reserves by buying USD forward from various banks at off market rates (to compensate the banks for the fx risk they are asked to carry)Recommend

  • Naveed
    Oct 15, 2015 - 11:02AM

    Even Bangladesh’s forex reserve, currency and growth rate is higher than Pakistan, so rather than showing numbers, why don’t govt work on basic things….Recommend

More in Business