Dar hopes to maintain reserves level at $4b.
Finance Minister Ishaq Dar on Saturday maintained that there would not be any major reduction in Pakistan’s nearly $4 billion foreign exchange reserves at present after China promptly refinanced the $1.3 billion loans repaid this week.
In a televised message, Dar announced that the country had also made another $300 million debt repayment to China, hoping that Beijing would refinance the amount within four or five days.
During the past five days, Pakistan has made $1.3 billion Chinese loans repayments despite having only $4 billion reserves in hand.
The finance minister’s strategy to make the repayments before time has helped retain the reserves at their thin level.
“All the payments will be made in time and there will not be any major change in the foreign exchange reserves position this month,” Dar assured the nation.
There were concerns that Pakistan would find it difficult to service the $3.6 billion debt in June because of only $4 billion available reserves.
For the next fiscal year, the estimated external debt repayments including interest costs are roughly $25 billion.
Pakistan has not yet been able to acquire any fresh bilateral loan, although it has budgeted receiving $3 billion from Saudi Arabia and the United Arab Emirates in new lending during the next fiscal year.
It has also budgeted $1.5 billion worth of Eurobonds but the transactions would be subject to receiving a satisfactory health of economy certificate from the International Monetary Fund (IMF).
A stable global interest rate environment and improvement in Pakistan’s credit ratings are the prerequisites for venturing into world’s capital markets.
On Friday Pakistan’s central bank announced that it received a $1 billion loan from China bringing the country’s foreign exchange reserves back to over $4 billion.
The loan was paid ahead of the June 29 due date as part of a debt management strategy to secure refinancing well before the end of the fiscal year.
Dar said China had waived the charges on premature debt repayments.
Pakistan had paid off $1 billion to the China Development Bank CDB on Monday.
Similarly the finance minister said another $300 million debt of the Bank of China which was due on June 26 was paid back on Friday.
The minister added that the $1 billion State Administration of Foreign Exchange loan was also being renewed.
Although the government has been trying to avert the looming default, its efforts sustained a new setback on Saturday when the PPP linked its vote for the new budget to more funds.
The PPP has raised the demand at a time when the IMF had already asked Pakistan to review its budget and make it in line with a prudent fiscal policy.
“There was little input of the PPP in the new budget and I have sent a high-level committee to the prime minister,” said Bilawal Bhutto-Zardari, the party’s chairman and also the foreign minister.
Bilawal added that
the Centre had promised the world and provincial governments that it would match the funds spent on the last year’s flood victims.
He continued that was why the PPP had approached its allies to make them understand that it was imperative that they looked after the flood victims in their budget.
“We have no doubts over the intentions of the PM as he witnessed the destruction with his own eyes. We would like to ask the prime minister to introspect within his team and hold those hindering this process accountable,” the PPP chairman said.
If the PPP’s demands were not satisfied, Bilawal stated that the party would not support the budget in the National Assembly.
The NA is currently debating the budget, which the government wants approved by June 23.
Prime Minister Shehbaz Sharif has a razor-thin majority in the NA and defection by a small coalition partner can bring his government down.
To appease the allies, the government has given a bloated Rs950 billion federal Public Sector Development Programme (PSDP) for the next fiscal year.
It has already allocated nearly half of the total PSDP for new schemes and any further increase in this ratio will have more adverse impacts on the ongoing projects.