Chinese Trade Finance Facility To Repay Pakistan’s Foreign Debt
Chinese Trade Finance Facility To Repay Pakistan’s Foreign Debt: The SBP’s decision to tap the Chinese trade facility for debt payment has temporarily stopped the downward trend in official foreign currency reserves. For the week ended June 1, the SBP reported a net increase of $8 million in the reserves.
Pakistan’s foreign currency reserves increased to $10.04 billion by June 1, according to the data issued by the SBP. The reserves included the $6.4 billion booked in forward contracts.
However, the problem with using the trade facility for shoring up the reserves is that the country will have to return the loan in Chinese currency after three years. It will then use the dollars it holds to buy Chinese yuan from the market, which will have a direct impact on the reserves.
The government will have to pay a higher mark-up, meaning this will be an expensive undertaking. Sources in the central bank said the reserves had fallen to $9.6 billion, which again bounced back to $10 billion.
The main worry for the new finance minister is to keep the country afloat till the upcoming general elections, said sources in the finance ministry.
At the weekend, the ministry officials remained busy balancing outflows and inflows for June and July, the sources added.
Their estimates suggested that excluding the impact of current account deficit in June, the official outflows were still higher than inflows, estimated at around $1 billion. The inflows do not include $500 million to $1 billion that Pakistan may get from China in the shape of deposits from the State Administration of Foreign Exchange (SAFE).
Central bank and finance ministry authorities are projecting a minimum $2-billion current account deficit in June, the sources said. This means even if the SAFE deposits reach Pakistan, the gross foreign currency reserves will be around $9 billion.
At this level, the reserves will not be sufficient to cover two months of imports. This, in turn, could put the rupee under pressure.
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