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Wednesday, May 18, 2022
EditorialMore loans, more traps

More loans, more traps

At a time when the government has asked the International Monetary Fund (IMF) for an additional $2 billion, the volume of foreign debt has already exceeded Rs42 trillion. As foreign exchange reserves are depleting fast, thanks to gigantic foreign debt service, so there is talk of the bankruptcy of the economy again. The State Bank of Pakistan has released foreign exchange reserves figures, which shows the fund stood at $16bn on December 31, 2021, have¬†fallen to $10.8bn. The figure will take another low when by June, it would have shed another $2.5 billion. Economists estimate that Pakistan urgently needs at least $12 billion to save its economy, otherwise the country may join the ranks of Sri Lanka. The current position of Sri Lanka, which is now economically bankrupt, is certainly the focus of countries with weak economies, including Pakistan. No country has come forward yet to bail out Sri Lanka. In view of this overall situation, it is imperative that the SBP always have at least $20 billion in capital reserves. Realizing this grave situation impending, the government in its recent negotiations with the IMF, asked for additional $2 billion. Moreover, Prime Minister Shahbaz Sharif is in Saudi Arabia on an official visit. He is likely to seek increase in the amount deposited in Pakistan from $3 billion to $5 billion and oil supply on deferred payments. At the same time, according to economists, a $4.3 billion rollover will be sought from China, another friendly country. In case of accumulation of these funds, although the foreign exchange reserves are expected to be closer to the required estimate, on the other hand, the volume of foreign debt, which is currently $42 billion, will have another $2 billion. In any case, it will have to be repaid with huge interest. The IMF’s toughest conditions are in addition to the fact that every path leads to inflation. On the other hand, after barely a week of decline, the dollar has reached the level of Rs186 again and if this trend continues, the volume of loans and their installments will also increase. It is pertinent to note that the increase in remittances during the last two years, which had a positive effect on foreign exchange reserves, has led to reports of large withdrawals from foreign currency accounts in the last one month. In 2019, the State Bank of Pakistan introduced Roshan Pakistan Digital Account Scheme which was very successful. As time goes on, it is time for overseas Pakistanis to take further steps with better incentives. Despite all this, as long as there is a trade imbalance and weak tax collection system in the country, there is no guarantee of reduction or elimination of foreign debt. It will be necessary to make every effort to ensure that the budget for the next financial year and its targets are achieved in the light of the views of economists keeping in view the above facts.

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