KARACHI: Governor State Bank of Pakistan (SBP) Jameel Ahmad has said that Pakistan is out of default as major external debt payments of $15 billion has been settled in the first half of FY23 and now the country needs to pay some $3 billion external debt, in the remaining period of this fiscal year, which will be managed successfully.
Addressing a press conference after the Monetary Policy Committee (MPC) on Monday at SBP head office, Governor SBP informed that cumulative financing requirements for this fiscal year were $33 billion including $10 billion of current account deficit and $ 23 billion of external debt. The country has successfully settled principal repayments of $15 billion so far during the current fiscal year. Out of this amount $9 billion were paid and $6 billion were rollover, he informed.
Remaining $8 billion needs to be settled in the next five months of this fiscal year. Out of this amount $ 3 billion will be rolled over and some $2.2 billion will be paid and reverted to Pakistan. As a Result, Pakistan has to pay external debt worth $3 billion by the end of June 2023 and this amount will also be managed successfully, he informed.
In addition, pledged foreign inflows are also expected to arrive in the next few months that will provide some cushion for repayment of debt during this fiscal year, he informed.
“In order to increase the foreign inflows and overcome the ongoing crisis, we need to enhance exports, home remittances and FDI besides curtailing the import to improve balance of payment” Governor SBP suggested.
He said that the current account deficit has narrowed by around 60 percent to $3.7 billion in the first half of FY23. This substantial reduction was due to a sharp contraction in imports, reflecting the impact of policy tightening and administrative measures. Now, due to import compression and better than expected current account deficit numbers of the first half of this fiscal year, the current account is likely to be below $9 billion, lower than initially estimated $10 billion.
To a question related to exchange rate, Jameel Ahmad said that current exchange rate is market-based exchange rate and moved up and down on market fundamentals. There is some gap in inflows and outflows that is creating a difference in the exchange rate, he added.
“In order to curb the illegal business of foreign exchange, the SBP is coordinating with law enforcement agencies and action is being taken”, he added.
Talking about the inquiry against the banks on dollar manipulation, Governor SBP informed that the inquiry against the banks has been completed and some 13 banks were investigated and action will be taken in next few days.
Overall, commercial banks’ foreign exchange business volume increased by 6 percent and they earned Rs 100 billion gross income on exchange rate during the three quarters starting from Jan to Sep of 2022. The banks’ exchange business is stabled after the month September, he mentioned. “SBP is committed and a decision will be made in the next few days. The decision could either be in the form of a regulatory fine or in the form of increased tax on forex income of the banks”, he said.
On imported stuck containers at ports, he said that after the meeting with the trade bodies like FPCCI and KCCI, the SBP on Monday has already issued directives to resolve the issue and banks have been advised to provide a one-time facilitation to all those importers who could extend their payment terms to 180 days or arrange funds from abroad to settle their pending import payments. He hoped that most of the stick containers would be released through this move.
In addition to supporting the export-oriented industries, banks have been asked to give priority to the export-related imported raw materials.
Replying to a question on higher Export Refinance Rate, Governor SBP said that ERF has to be linked with the policy rate as a part of our international commitments. SBP is also making efforts to bring more foreign inflows in the country and recently, banks were directed to mandatory deposit some 35 percent inflows of IT exports into their foreign currency accounts.
On lower workers’ remittances, he replied that a slowdown in remittances was already expected as during the Covid-19 there were restrictions on the travel and most of the amount was being transferred through banking channels. As now the travel restrictions have been lifted, the passengers are also bringing foreign exchangers with them. In addition, some countries have also reduced workforce that resulted in lower home remittances inflows, he added.
Jameel Ahmad said that there is no restriction on withdrawal of dollars from foreign currency accounts. “SBP has already asked the banks to provide the dollars to the customers and SBP will provide the dollars to the banks, if they required”, he added.
Copyright Business Recorder, 2023