Thursday, August 4, 2011

ISLAMABAD: Pakistan will have to repay over $8 billion obtained under the Standby Arrangement (SBA) from the IMF within the next four years up to fiscal year 2014-15 since the State Bank of Pakistan (SBP) will have to return installments of the $1.4 billion loan in the ongoing fiscal year starting February 24, 2012, The News has learnt.

According to the repayment schedule agreed between the IMF and Pakistan, which is available with The News, Pakistan will have to return the first due installment of $413 million — 258 million Special Drawing Rights (SDR) — to the IMF on February 24, 2012. This will be paid back to the Fund from foreign currency reserves held by the SBP.

The foreign currency reserves rose to over $18 billion in the wake of a comfortable external account balance but pressure will start to be felt on that side after the initiation of repayments to the IMF loan as well as the possibility of a further dip in exports owing to a decline in the prices of cotton in the international market. The higher remittances are rescuing Pakistani authorities but many economists term this phenomenon ‘mysterious’ and require further analysis to know reasons for achieving unprecedented growth in this sector. An analysis done by SBP shows that 68 percent transactions of money received from abroad can be termed small transactions. 

The existing $11.3 billion SBA program is going to expire on September 30, 2011 as the last two tranches of $3.2 billion seem like a pipedream in the aftermath of Islamabad’s failure to pursue key reforms as well as the emergence of the revenue figures fiasco that has severely tarnished the credibility of the economic team. 

“The first installment of SBA program worth $413 million (258.4 million Special Drawing Rights) of the IMF will be due on Feb 24, 2012; the second installment worth $413 million on May 25, 2012; and third installment of $113 million on June 29, 2012,” say official documents showing details of repayment arrangements between Pakistan and IMF.

The SDR is an international reserve asset, created by the IMF in 1969 to supplement the existing official reserves of member countries. SDRs are allocated to member countries in proportion to their IMF quotas. The SDR also serves as the unit of account of the IMF and some other international organisations. One US dollar is equivalent to 1.6 SDR. Islamabad will have to repay 258 million SDR on August 24, 2012, which translates into over $400 million and 71 SDR on October 2012. The total repayments in year 2012 will stand in the range of 1.418 billion SDR, 2.362 billion SDR in 2013, 1.230 billion SDR in 2014 and 193 million SDR in 2015.

The foreign currency reserves of Pakistan stand in the range of over $18 billion out of which over $8 billion is loans obtained from the Fund under the existing SBA program. After excluding the IMF loan, the position of foreign currency reserves, which will stand in the range of $10 billion, will be exposed to vulnerabilities. 

Despite the outstanding performance of remittances as well as improved performance of the exports sector, Pakistan is left with no option but to seek another IMF programme in the range of $3 to $5 billion to give other donors and investors the signal that the country is under tight scrutiny of the IMF.


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