HomeHot NewsAnother $1 billion is due for Pakistan

Another $1 billion is due for Pakistan

Early next month, Pakistan is scheduled to repay more than $1 billion in debt to two foreign commercial banks, as the government struggles mightily to prevent a sovereign default with very little gross foreign exchange reserves still available.

Sources indicate that during the first week of January, the government will repay two loans to Gulf banks. These loans had been guaranteed for a year in the hopes that the lenders would further defer repayment when the time came. Foreign lenders were prevented from honoring their obligations to Pakistan by junk credit ratings that indicated a high risk of default.

Two commercial banks in Dubai will receive separate repayments of $600 million and $415 million. These payments are anticipated to significantly reduce the already fragile foreign exchange reserves, which are currently valued at $6 billion until new loans are secured. Regarding this article, the Ministry of Finance made no comments.

Since the International Monetary Fund (IMF) did not confirm a mission visit that was ad hoc scheduled for October 26, Pakistan’s economic problems have gotten worse. The likelihood of default has increased, and former finance minister Miftah Ismail has frequently stated that, in the absence of the IMF program, the nation might default.

But on Wednesday, Finance Minister Ishaq Dar vehemently asserted that Pakistan “will not default” on its international obligations because the government had secured the $31-32 billion needed for the current fiscal year 2023.

Despite Dar’s early-morning speech, the stock market fell another 524 points, indicating that the finance minister’s remarks did not calm uneasy investors. Since the dollar is not available at this rate in the open market, the rupee continued to lose value and closed on Wednesday at a rate of over Rs226.37 to the dollar.

As much as Rs. 25 to Rs. 30 per dollar now separates the black market rate from the interbank rate.

According to information obtained by The Express Tribune, the $32 billion plan was overly optimistic to succeed in the absence of the IMF’s protection. The government has included floating Eurobonds as a means of raising $1.5 billion as part of its external financing strategy. On account of Naya Pakistan Certificates, an additional net of $300 million is anticipated (NPC).

The Ministry of Finance still expects $6.3 billion to materialize in the current fiscal year—a figure that also seems incredibly optimistic—instead of the over $7 billion in foreign commercial loans that were budgeted. The government is banking on China renewing its $3.5 billion in foreign commercial loans and non-Chinese banks not calling in their $1.3 billion in loans. According to the finance ministry, $700 million

To date, however, neither Chinese nor non-Chinese commercial banks have extended loans because of the negative effects Pakistan’s junk credit rating has had on their overall balance sheets.

The government projects that it will be able to obtain new $1.5 billion foreign commercial loans during the current fiscal year, but this prediction may not come to pass if the IMF program is not revived. Today, foreign commercial banks are requesting interest rates that are much higher than 10%, which the government politically cannot accept.

The loans that Pakistan is repaying next week were taken out at the offered rate plus 2 to 2.2% from the London Bank. The sources claim that even at the current Libor rate, the overall cost will be over 6%, or about 50% less than what the banks are currently asking for.

Nathan Porter, the IMF’s mission chief in Pakistan, requested that Islamabad allow the rupee to appreciate its true value at the most recent meeting, a request that appears to run counter to the policies of the administration.

The government’s priorities also appear to be in the wrong place, as it is more concerned with stopping currency smuggling than it is with resolving the underlying issues that led to it in the first place. According to a press release from the PM’s office, Prime Minister Shehbaz Sharif presided over a meeting on Wednesday to reduce smuggling and improve the FBR’s ability to collect money through enforcement.

The government makes an accurate prediction that it will be able to obtain the $7 billion loan that China and Saudi Arabia have agreed to roll over. While Pakistan has asked China to roll over the $4 billion that is due to mature in this fiscal year, Saudi Arabia has already done so for $3 billion.

Related: Defense and interest costs totaled Rs. 2.2 trillion

The multilateral creditors are expected to give the finance ministry $11 billion, but whether or not they do so depends on the IMF program being revived. Up to this point, Pakistan has received significant assistance from the Asian Development Bank, but the World Bank is looking to the IMF.

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