‘Country in a comfort zone’: SBP chief sees no external debt repayment crisis

KARACHI: State Bank of Pakistan (SBP) Governor Jameel Ahmed Monday said with significant improvement in external account, Pakistan is in a comfort zone and there will be no external debt repayment crisis during this fiscal year (FY25).

Addressing a press conference on Monetary Policy at SBP head office, Jameel talked about the external debt servicing saying that Pakistan will comfortably manage all external repayments during this fiscal year with controlled current account deficit and improved foreign inflows.

He informed that Pakistan has to make a debt servicing of $ 26 billion including $ 4 billion of interest during this fiscal year (FY25). Out of which, about $ 16 billion are commercial loans or bilateral deposits and these will rollover.

An amount of $ 3 billion has already been settled from $ 24 billion in July. Some $ 1.1 billion external debt has been paid, while $ 2 billion has been rolled-over during the first month of this fiscal year, he added.

“We have exchange reserves higher than repayments, while several inflows are also expected to arrive during this fiscal year. Currently, SBP’s foreign reserves are above $ 9 billion mark and after accumulating the rollover amount, external debt is even less than the reserves held by the SBP,” he maintained.

He said despite the massive external debt servicing, the SBP’s foreign exchange reserves are in its comfort zone and likely to reach $ 13 billion mark by the end of FY25 up from the current level of $ 9 billion.

Expected financial inflows, including planned official flows under the IMF program, would help finance this current account deficit and further strengthen the FX buffers, the Governor SBP said. Jameel said presently there are no restrictions on imports and external payments. Banks were allowed to repatriate all pending amounts on account of profit and dividend. Accordingly, foreign companies in Pakistan repatriated $2.215 billion on account of profits and dividends in FY24 compared to $331 million in the previous year (FY24), he added.

He mentioned that June current account deficits were largely due to higher dividend and profit payments, which more than offset a significant increase in exports and workers’ remittances.

He further said that currently there are no restrictions on imports by the SBP and banks are allowed to make import transactions as per their policy without obtaining prior permission from SBP. Importers can contact their respective banks for opening of LCs. “We are expecting some more growth in imports but we will have more cushion to finance the imports”, he added.

Replying to a question, he informed that SBP is working on a regulatory framework for exchange companies to further improve their operations. In addition, as per SBP’s guidelines, 10 banks have set up their exchange companies to facilitate the customers.

On current account estimates Governor SBP said that the current account deficit for this fiscal year is expected to be 0.1 to 1 percent of GDP or below $4 billion. Controlled current account will also help to make timely foreign payments, he added.

He mentioned that the government and SBP have focused on the SMEs sector and banks have been asked to extend loans to SMEs on a top priority basis.

On exchange rate expectations, Jameel Ahmed said that Pakistan’s exchange market is free float, in which exchange rate is determined by the market. SBP has no role in determining the exchange rate and does not define any benchmark, he added.

Copyright Business Recorder, 2024