Acting Governor State Bank of Pakistan (SBP) Dr Murtaza Syed on Saturday said Pakistan’s $33.5 billion external financing needs were fully met for financial year 2022/23, adding that “unwarranted” market concerns about its financial position will dissipate in weeks.
Fears have risen about Pakistan’s stuttering economy as the rupee fell nearly eight per cent against the US dollar in the last trading week, while forex reserves stand below $10 billion with inflation at the highest in more than a decade.
“Our external financing needs over the next 12 months are fully met, underpinned by our ongoing IMF programme,” Syed told Reuters in an emailed reply to questions.
Pakistan last week reached a staff-level agreement with the IMF for the disbursement of $1.17bn in critical funding under resumed payments of a bailout package.
“The recently secured staff-level agreement on the next IMF review is a very important anchor that clearly separates Pakistan from vulnerable countries, most of whom do not have any IMF backing,” he said.
However, the lender’s board needs to approve the agreement before the disbursement, which is expected in August, before which there remain prior policy actions to be fulfilled, according to sources familiar with the matter.
But some question Pakistan’s ability to meet external financing needs, including debt obligations, despite IMF funding.
Syed played down those concerns, saying that Pakistan’s public debt profile, one of the “main flashpoints” for markets these days, is much better than in vulnerable countries with high public debt.
The country’s public debt-to-GDP ratio is 71pc.
“Pakistan’s external debt is low, of relatively long maturity, and on easier terms since it is heavily skewed toward concessional multilateral and official bilateral financing rather than expensive commercial borrowing,” he said.
In a recent presentation to international investors reviewed by Reuters, Syed said $33.5bn in gross external financing needs would be met “comfortably” with $35.9bn in available financing.
Most of the financing was shown from multilaterals, oil payment facilities, and rollovers of bilateral financing, and the heaviest financing needs were in Q2 of FY2022-23.
The presentation also compared the situation in Pakistan to Sri Lanka, which recently defaulted, and said: “Pakistan tightened monetary policy and allowed the exchange rate to depreciate as soon as external pressures began.”
It added that Sri Lanka’s fiscal position had been much worse than Pakistan’s, with primary deficits three to four times larger since the pandemic.
Syed said Pakistan was being unfairly grouped with more vulnerable countries amid panic in global markets due to a commodity supercycle, tightening by the US Federal Reserve and geopolitical tensions.
“Markets are responding to these shocks in an unfairly broad-brush way, without paying enough attention to Pakistan’s relative strengths,” he said.
“We expect this reality to dawn in the coming weeks and the unwarranted fears around Pakistan to dissipate.”