Pakistan’s foreign currency reserves could fall to $7.5 billion:IMF

Islamabad: The International Monetary Fund (IMF) has projected that Pakistan’s foreign currency reserves held by the central bank could fall to $7.5 billion by the end of FY13, sources said.
The IMF is going to unveil its report under the Post Program Monitoring (PPM) publicly after getting approval from its executive board, probably by November 2012. Both sides recently concluded the PPM talks here in Islamabad, where the fund staff assessed the country’s growing vulnerabilities on debt repaying capacity.
Sources said the looming Balance of Payments crisis is due to heavy debt repayment and the inability of Islamabad to bridge its current account deficit gap.
The reserves held by the State Bank of Pakistan (SBP) have already dropped from $10.360 billion to $9.919 billion this week.
Pakistan is facing a crisis-like situation in tackling its fiscal and current account deficits and their financing is a major challenge for economic managers.
On debt sustainability, the major challenge is regarding domestic debt, which is piling up in the wake of growing fiscal imbalance. The external debt and liabilities of the country are currently standing at $65 billion.
Total public debt crossed Rs13.2 trillion in June this year and witnessed an almost 200 percent surge during the last five years — a level never achieved since the independence of the country.
However, the depletion of foreign currency reserves could put immense pressure on the exchange rate, sources added.
According to different data projections for different scenarios, Islamabad’s economic managers agreed that the reserves held by the State Bank of Pakistan would nosedive to $7.5 billion by end-June 2013 because of the $2.8 billion repayment to the IMF in the current fiscal year as well as Islamabad’s inability to bridge the current account deficit.
If foreign inflows are kept constant at the level of the ongoing financial year in FY14 and the outflows continue according to projection, the country’s foreign currency reserves could touch their lowest ever ebb of $56 million by the end of June 2014, sources said.
This would be in the wake of huge repayments to the IMF in the range of $3.4 billion to $3.7 billion, depending on the rate of conversion of Special Drawing Rights to the US dollar.
This economic scenario clearly indicates that there is no other choice but to seek a fresh loan from the IMF by the end of the current fiscal year or by early months of the coming financial year, sources said.
However, according to an updated version of Regional Economic Outlook (REO) released by the IMF on Saturday, the fund projected the country’s gross domestic product (GDP) growth at 3.3 percent for FY13, which could go up to 3.5 percent by FY17. The IMF did not forecast any slow down in the rate of inflation as claimed by the government as official CPI had already come down to single digits but the IMF envisaged inflation rate hovering around 11.3 percent for FY 2013, which would be standing at 11.8 percent by FY17.
The current account deficit as a percentage of GDP will be hovering around negative 1.7 percent of GDP, which is projected to go up to 3.5 percent of GDP by 2017, the Outlook said.
Independent economists say the real challenge for the government in the current fiscal year is to finance external accounts in the wake of upcoming heavy repayments to the donors, especially to the IMF, and to address the issue of dried up foreign inflows.
However, in an interview of the IMF’s Director for Middle East and Central Asian Department Masood Ahmed, published in Emerging Markets, he stated the IMF would be ready to sit down with Pakistan’s leaders if they sought a new multibillion dollar loan.
Questions were sent to IMF’s spokesperson in Washington on Friday to get their version on the matter but no response was received till the filing of this report.