World News | Pakistan: nuclear power without a stable economy

Islamabad [Pakistan]Jul 24 (ANI): Pakistan may have nuclear capabilities, but the country is struggling with its rapidly depleting foreign exchange reserves, a falling rupee and growing budget and current account deficits, as well as a rupee that has lost almost 20% of its value in just 7 months since January 2022.

Reserves at the State Bank of Pakistan have fallen to $9.32 billion, barely enough to pay for 45 days of imports. The red line for the SBP’s foreign exchange reserves is $7.5 billion to avoid “default”.

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Pakistan’s political instability threatens to derail efforts to regain the confidence of major lenders. The country’s currency had its worst week in more than two decades, reflecting investor concerns that the country risks following Sri Lanka to become the next emerging economy to default on foreign repayments.

Emerging market currencies are feeling the heat as the hawkish Federal Reserve attracts capital to the United States. Panic in Pakistan’s stock and currency market also stems from escalating risks following former Prime Minister Imran Khan’s partial victory, which added to concerns over the country’s bailout deal with the IMF, it needs to avoid a default.

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According to reports and trends, the dollar is spiraling out of control in Pakistan and traders are panicking in the market that the rupee might drop further.

In a desperate move to avoid default, the federal cabinet approves an order to sell state resources. The government approved an ordinance to circumvent all procedures involved in the sale of state assets and abolished regulatory controls through the “Intergovernmental Business Transactions Ordinance 2022”.

The move is seen as a desperate attempt to save the country from default by urgently selling state assets to foreign countries. However, President Arif Alvi has yet to sign the order.

The federal cabinet on Thursday approved the order to sell stakes in government-owned oil and gas companies and power plants in the United Arab Emirates to raise $2 billion to $2.5 billion to avert the impending default. The United Arab Emirates in May refused to make cash deposits due to Pakistan’s non-repayment of earlier loans and instead asked to open its businesses to investment.

Top economics and trade experts say the IMF deal is a crucial step towards unlocking the external financing Pakistan needs to avoid a default.

The red line for the SBP’s foreign currency reserves is $7.5 billion to avoid “default.” If the UAE and Saudi Arabia or even China withdraw their $2.3 billion; Pakistan’s economy will collapse.

As of July 15, foreign exchange reserves held by the State Bank of Pakistan were recorded at $9.32 billion, down $389 million from $9.71 billion as of July 7, 2022.

The State Bank of Pakistan’s foreign exchange reserves fell into single digits despite a $2.3 billion inflow from China late last month. The central bank’s foreign exchange reserves are expected to improve after receiving $1.17 billion from the global lender.

During the week ended August 27, 2021, foreign exchange reserves held by the central bank reached a record high of $20.15 billion after Pakistan received a general allocation of Special Drawing Rights (SDRs) from worth $2,751.8 million from the IMF. (ANI)

On Friday morning, the rupee was trading at 232 to the dollar, after closing Friday at 228.37 interbank; after Fitch Ratings revised its outlook for Pakistan’s sovereign debt from stable to negative – although it confirmed the Long-Term Foreign Currency Rating (LTFC) and Issuer Default Rating (IDR) at ” B-“.

The country’s finance minister, Miftah Ismail, said the panic was due to political unrest, not economic fundamentals. Pakistani economist Atif Mian analyzes how the Pakistani rupee has lost 20% of its value and that the key issue will be ‘rationing’, in the short term.

“The dollar is spiraling out of control and traders are panicking in the market, I am afraid the rupee may fall further,” Pakistan Exchange Companies Secretary General Zafar Paracha said, expressing concern.

Pakistan’s central bank raised its key rate to 15% to curb inflation, which hit 21.3% in June.

Ismail, told a press conference in Islamabad, referring to the lack of foreign exchange reserves, “we think we will get $1.2 billion in deferred payment for oil from a friendly country; we think a foreign country will invest $1.5-2 trillion in stocks on a G2G (government-to-government) basis, and another friendly country may give us gas in deferred payment and another friendly country will make deposits.”

The finance minister said the country will also receive about $6 billion from the World Bank and the Asian Development Bank in the 2022-2023 financial year.

He said the country needed $41 billion in foreign currency over the next 12 months. “We need to repay $21 billion in loans, need $12 billion in current account deficit financing, and another $8-09 billion to maintain foreign exchange reserves and avoid a default.” (ANI)

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