On foreign exchange reserves, it said the State Bank of Pakistan (SBP) had about $7.6 billion till October 14, which can cover about a month of current external payments. It also noted that forex reserves had tumbled from over $20 billion at the end of August 2021. “Falling reserves reflect large, albeit, declining current account deficits (CADs), external debt servicing and earlier foreign exchange interventions by the SBP,” the credit rating agency said.
Before stabilising in the week of October 14, reserves had been falling every week since the disbursement of $1.2 billion from the IMF in the week of September 2, upon the completion of the seventh and eighth reviews of Pakistan’s Extended Fund Facility (EFF), the rating agency said.
It also noted that the current account deficit reached $17 billion (4.6% of GDP) in the fiscal year that ended in June 2022 (FY22), driven by soaring oil prices and higher non-oil imports on strong private consumption. Fiscal tightening, higher interest rates and measures to limit energy consumption and imports underpin our forecast for the CAD to narrow to $10 billion (2.7% of GDP) in FY23, despite the hit to export revenue and import needs after the recent floods. “Lower imports and commodity prices helped to narrow the CAD in recent months, to about $300 million in September,” Fitch said.
Pakistan’s external public debt maturities in FY23 are over $21 billion, mostly to bilateral and multilateral creditors, which mitigates rollover risks, and there are already agreements to roll over some of these. Quoting authorities, Fitch placed estimated flood damage at $10 billion-30 billion, but reconstruction costs are likely to be lower, as is the impact on Pakistan’s twin deficits.
“Pakistan recently received funding commitments of $2.5 billion from the World Bank and Asian Development Bank, although we understand that much of this is repurposed from ongoing programmes,” the statement cited. “It remains unclear to what degree the IMF will be able to relax Pakistan’s programme targets, or augment Pakistan’s access under the extended fund facility (EFF).” “We assume Pakistan will continue to receive disbursements under its IMF programme, but risks to this have risen,” it said.
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