Summary Pakistan had to pay $3.7bn in amortisation debt repayment and $400m in interest payments
KARACHI (Web Desk) - Former finance minister and disgruntled PML-N leader Miftah Ismail on Thursday feared that the country's foreign exchange reserves could drop below the alarming level of $2 billion by the September end.
"The ongoing economic crisis is not like the old recessions Pakistan had in the past," he said while speaking at a meeting of businessmen at the German consulate the other day.
The central bank's forex reserves clock in at $4.4bn currently as the $7bn International Monetary Fund (IMF) loan programme is in the doldrums.
Ismail, who served Pakistan as finance minister twice, informed the audience that Pakistan had to pay $3.7bn in amortisation debt repayment and $400 million in interest payments within the next two months.
In other words, the outflow of dollars in terms of external loan-related payments amounts to $4.1bn while the total reserves of the State Bank of Pakistan (SBP) stand at only $4.4bn.
Of the $4.1bn figure, $1bn is a safe deposit from China, meaning it’s the money that the Chinese central bank has deposited with the SBP. China will likely re-roll it, bringing the total expected outflow to $3.1bn.
The fomer minister said Islamabad owes another $1.5bn to two Chinese banks, which may also re-roll the sum but the process will take time, adding “so by Oct 1, we’d probably have less than $2bn. How long we can survive after that, only Allah knows. Things will get very difficult for Pakistan temporarily”.
Ismail said domestic debt servicing is also getting out of control particularly with the interest rate climbing to unprecedented highs, criticising fiscal practices of the provinces, which show little interest in raising revenues by taxing real estate, agriculture and services.
As a result, the provinces eat up Rs4.5 trillion out of the annual federal tax revenue of Rs7.5tr. Even if one adds Rs1.5tr that the federal government is supposed to collect in non-tax revenue, Islamabad will be left with just Rs4.5tr in its kitty. The sum isn’t even remotely sufficient to balance the fiscal account as the domestic debt servicing is touching Rs6tr a year.
“When you have to borrow money to pay interest, you’re in a debt trap,” he said.
German Consul General Dr Rüdiger Lotz, speaking on the occasion, said Pakistan required political stability to battle the ongoing economic crisis.
