SBP blames newspaper articles for volatility
Central bank says rupee value ‘broadly in line with economic fundamentals’.
SBP had previously said that shifting financing away to non-debt creating inflows (ie foreign investments) was necessary to strengthen the country’s debt servicing capacity. PHOTO: FILE
KARACHI:
Blaming “newspaper articles” for recent volatility in the rupee’s value against the dollar, the State Bank of Pakistan (SBP) said on Tuesday that the current level of exchange rate was broadly in line with economic fundamentals.
Without naming any newspaper, the SBP said in a statement that the rupee is facing speculative pressures after the media criticised the government’s external borrowing and the quality of reserves it is accumulating.
Foreign exchange: SBP reserves down to $14.821 billion
While the government has been boasting about increasing SBP-held foreign exchange reserves to a record-high level, a number of economists have pointed out that most of such inflows owe their existence to expensive foreign debt.
“These articles are highlighting just one aspect of the debt dynamics without contextualising it in Pakistan’s current performance and the overall macroeconomic stability,” the statement read.
SBP-held foreign exchange reserves rose from just about $3 billion in November 2013 to almost $15 billion. 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.
SBP cuts policy rate to 6%
Referring to reports by international rating agencies, the central bank said the writers quoted them ‘conveniently’ by ignoring the strengths of the economy highlighted in the same reports.
In a recent report, Moody’s said Pakistan’s debt affordability had weakened after it shifted to non-conventional loans by issuing $3.5 billion worth of international bonds, increasing its borrowing costs.
“Moody’s has also mentioned that while Pakistan’s government financing is mainly from domestic sources and system-wide external debt is declining as a percentage in GDP, the level of public debt poses a moderate degree of credit risk,” the SBP said.
Pakistan’s external debt obligation has actually decreased from 33% of GDP in 2009-10 to 23% at the end of 2014-15, the SBP noted.
Analysts divided over status quo or rate cut
Many analysts believe the build-up of foreign exchange reserves is not sustainable because it is not based on foreign direct investment or earnings from exports. In fact, exports shrank by $538 million, or 9%, on an annual basis during the first quarter of the current fiscal year.
But the SBP claims that in spite of ‘stagnant’ exports, the external debt-to-exports ratio has declined from 300% in 2009-10 to 255% in 2014-15. “Moody’s has appreciated the progress on structural reforms undertaken by Pakistan,” the SBP insisted.
The SBP said the economic fundamentals were consistent with the improved external position of the country, which has been achieved through contained external current account deficit at low levels, continued surplus in the overall balance of payments of the country and built-up of foreign exchange reserves to historic high levels.
Current account deficit indeed shrank 93.3% ($1,522 million) year on year in July-September. That was partly because Pakistan’s import of goods declined by over $2 billion in the three-month period, thanks largely to falling oil prices in the international market.
SBP reiterates stance on promotion
The SBP said borrowing externally is necessitated by trends in balance of payments in general and trade deficit in particular. “In addition to privatisation proceeds, spot purchases from the interbank market amid falling oil prices and rising workers’ remittances, Coalition Support Fund, and multilateral and bilateral inflows, increase in foreign exchange reserves have also come from external borrowing, including that from international capital markets,” it said.
Debt 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. Interestingly, the SBP had previously said that shifting financing away to non-debt creating inflows (i.e. foreign investments) was necessary 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 had advised the government in one of its recent reports.
Published in The Express Tribune, November 11th, 2015.
Blaming “newspaper articles” for recent volatility in the rupee’s value against the dollar, the State Bank of Pakistan (SBP) said on Tuesday that the current level of exchange rate was broadly in line with economic fundamentals.
Without naming any newspaper, the SBP said in a statement that the rupee is facing speculative pressures after the media criticised the government’s external borrowing and the quality of reserves it is accumulating.
Foreign exchange: SBP reserves down to $14.821 billion
While the government has been boasting about increasing SBP-held foreign exchange reserves to a record-high level, a number of economists have pointed out that most of such inflows owe their existence to expensive foreign debt.
“These articles are highlighting just one aspect of the debt dynamics without contextualising it in Pakistan’s current performance and the overall macroeconomic stability,” the statement read.
SBP-held foreign exchange reserves rose from just about $3 billion in November 2013 to almost $15 billion. 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.
SBP cuts policy rate to 6%
Referring to reports by international rating agencies, the central bank said the writers quoted them ‘conveniently’ by ignoring the strengths of the economy highlighted in the same reports.
In a recent report, Moody’s said Pakistan’s debt affordability had weakened after it shifted to non-conventional loans by issuing $3.5 billion worth of international bonds, increasing its borrowing costs.
“Moody’s has also mentioned that while Pakistan’s government financing is mainly from domestic sources and system-wide external debt is declining as a percentage in GDP, the level of public debt poses a moderate degree of credit risk,” the SBP said.
Pakistan’s external debt obligation has actually decreased from 33% of GDP in 2009-10 to 23% at the end of 2014-15, the SBP noted.
Analysts divided over status quo or rate cut
Many analysts believe the build-up of foreign exchange reserves is not sustainable because it is not based on foreign direct investment or earnings from exports. In fact, exports shrank by $538 million, or 9%, on an annual basis during the first quarter of the current fiscal year.
But the SBP claims that in spite of ‘stagnant’ exports, the external debt-to-exports ratio has declined from 300% in 2009-10 to 255% in 2014-15. “Moody’s has appreciated the progress on structural reforms undertaken by Pakistan,” the SBP insisted.
The SBP said the economic fundamentals were consistent with the improved external position of the country, which has been achieved through contained external current account deficit at low levels, continued surplus in the overall balance of payments of the country and built-up of foreign exchange reserves to historic high levels.
Current account deficit indeed shrank 93.3% ($1,522 million) year on year in July-September. That was partly because Pakistan’s import of goods declined by over $2 billion in the three-month period, thanks largely to falling oil prices in the international market.
SBP reiterates stance on promotion
The SBP said borrowing externally is necessitated by trends in balance of payments in general and trade deficit in particular. “In addition to privatisation proceeds, spot purchases from the interbank market amid falling oil prices and rising workers’ remittances, Coalition Support Fund, and multilateral and bilateral inflows, increase in foreign exchange reserves have also come from external borrowing, including that from international capital markets,” it said.
Debt 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. Interestingly, the SBP had previously said that shifting financing away to non-debt creating inflows (i.e. foreign investments) was necessary 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 had advised the government in one of its recent reports.
Published in The Express Tribune, November 11th, 2015.