EDITORIAL: Pakistan has received 12.5 billion dollars in foreign loans during the first nine months of the current fiscal year against the budgeted amount of 20.4 billion dollars (external receipts 5,685,801 million rupees at the exchange rate of 278 rupees per dollar as envisaged in the budget).
As the rupee-dollar parity fluctuates, though it has fluctuated minimally since last year and is at present 280.86 rupees interbank and 280.60 rupees open market, yet the source of the country’s foreign exchange reserves is the best indicator of the health of the reserves.
In this context, it is relevant to note that Governor State Bank of Pakistan (SBP) revealed that a record 9 billion dollars was purchased from the local market (with over 4.5 billion dollars purchased between July and December 2024) to remain afloat due to low foreign inflows in spite of the expected inflows from friendly countries subsequent to the approval of the 7 billion dollar programme loan from the International Monetary Fund (IMF).
It is not known whether the SBP has engaged in similar purchases this calendar year though sceptics point to the resilience of the Pakistani rupee when there was a fall in major currencies of the world after Trump took oath of office.
As of 11 April 2025 the reserves held by the SBP were 10,572.4 million dollars while the foreign currency held by the private sector in commercial banks was 5089.6 million dollars that international best practice does not strictly constitute official reserves - a practice adhered to by international donor agencies.
It is noteworthy that the assets held by the commercial banks cannot be utilised to pay off interest and principal as and when due on foreign loans. Be that as it may, the Governor SBP has publicly stated that 16 billion dollars is expected to be rolled over this year and that to date 12 billion dollars has been rolled over by the three friendly countries – China, Saudi Arabia and the UAE – with the remaining amount expected to be rolled over as and when it becomes due. This is alarming as the amount of reserves today is less than the amount already rolled over.
The SBP website notes that the Governor recently “emphasised that Pakistan has successfully transitioned from a period marked by macroeconomic instability—characterized by high inflation, low reserves, and fears of default—to one of stable macroeconomic conditions, renewed confidence, and recovery in economic growth.
He pointed to significant improvements across multiple economic indicators, signaling a much-needed revival of economic growth. He highlighted that inflation has come down substantially, external current account balance has turned into a surplus, FX buffers have been rebuilt, and public debt indicators have improved considerably during the past couple of years.
He highlighted that workers’ remittances reached an all-time high level of USD 4.1 billion in March 2025 – partly reflecting the result of government and SBP efforts to incentivize the channeling of inflows via formal channels, as well as smooth functioning of domestic FX market.
He said that total remittances for FY 25 are expected to be around USD 38 billion.” This cannot be denied and there is now macroeconomic data that supports the claim that the situation is improving albeit not on all fronts and the most worrisome data is in the rise in poverty levels to 44 percent in spite of decline in inflation rate and the stabilisation of the Pakistani rupee against the dollar.
While appreciating the efforts of the government to move towards an improvement, a slow and arduous process at best, we would urge the government to minimise the IMF leverage on policies which would need to be phased out to support the widening pool of the poor and the vulnerable.
All foreign exchange loans incurred must be limited to repayment of interest on past loans and principal as and when due.
However, this would entail reduction in current expenditure in relation to the year before and the usual practice of raising this item every year must be abandoned in the budget for next fiscal year. This would also require implementing pension reforms that are at present paid for at the taxpayers’ expense for government servants who constitute no more than 7 percent of the total workforce at any given time.
Copyright Business Recorder, 2025
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