ISLAMABAD: In a lifeline offered by the Chinese to stem a decline inforeign exchange reserves, a $2 billion of loan has been sanctioned forPakistan to ease pressure on the next government.
According to sources in the Ministry of Finance and State Bank of Pakistan(SBP), the $2 billion loan from China will be considered as an “officialbilateral inflow”, reported Express Tribune.
The sources shared $1 billion had already been received in the SBP’saccounts and would be shown in the reserves data to be released nextThursday (August 2nd).
Consequently, the forex reserves held by the central bank will bump up to$10 billion. On July 26th, the central bank reported its officially heldforex reserves had plunged to $9 billion, enough to offer import cover fora period of 1.5 to 2 months.
Pakistan has been facing a crisis on the external front, with burgeoningtrade & current account deficits and depleting foreign exchange reserves.
Also, the next government will face a massive challenge of arranging itsexternal financing needs of $11 billion as repayments on maturing bondsbecomes due in existing FY19 to avoid a balance of payment crisis.
On Friday, the dollar shed 21 paisa against the rupee in the inter-bankmarket to trade at Rs127.90.
On Thursday, the rupee had appreciated by Rs1.10 per dollar a day after theelections that saw the Pakistan Stock Exchange surging by 750 points toclose Thursday’s session at 42,089.16 points.
As the central bank reserves plunged, the rupee diminished in value againstthe dollar. However, the most damaging aspect has been the burgeoningcurrent account deficit, which widened to $18 billion in FY18.
On a cumulative basis, the rupee has depreciated by around 21 percent thisyear and foreign exchange reserves touched their lowest ebb in the lastfour years.
From December 2017 till the middle of July this year, the rupee has beendevalued in four rounds by the State Bank of Pakistan by around 21 percentto stimulate exports, which grew by around 14 percent to $23.228 billion inrecently concluded FY18.
However, correspondingly imports skyrocketed to a record high of $60.898billion, growing 15.10 percent and contributing to the trade deficitreaching $37.670 billion in FY18.