Moody’s says Pakistan doesn’t have enough FX reserves to pay debts

Pakistan does not have enough foreign exchange reserves to pay its public and private external debt due over this year, a report by Moody’s said on Thursday.

“Foreign exchange reserves are low, and gross borrowing requirements are large in Pakistan and Sri Lanka, threatening the ability of these governments to refinance debt and fund deficits affordably,” Moody’s Investors Service said in its report.

The credit rating agency said the total public and private external debt due over the next year is larger than foreign exchange reserves.

Foreign exchange reserves are on lower side in Pakistan. The lower reserves threaten government to refinance debt, it noted.

Pakistan’s foreign reserves declined owing to persistent current account deficit. The reserves coverage of imports has also fallen, Moody’s further said.

“Reserves are now worth less two months of goods and services imports,” the credit agency noted.

In a sign that new loans may be on the cards, Pakistan will need far more dollars than our central bank currently has in its reserves to meet our external financing needs (imports and loan repayments) this year, according to a report by Moody’s.

The sovereign credit rating agency says its external vulnerability indicator (EVI) reading for Pakistan exceeds 160% for 2019, indicating that total public and private external debt due over the next year is larger than foreign exchange reserves.

This simply means that our current dollar reserves, which stand at $7.2 billion, are not enough to repay our foreign loan and plug in the trading loss ($2.3 billion per month) this year. This will make us vulnerable on the external front and again push us to a default like the situation we have just averted with the help of dollars received from Saudi Arabia.

Pakistan needs $12 billion to meet its external financing needs till June 2019, but it could only get $3 billion from the Saudi government and as much was promised by the UAE. It has received $2 billion from Riyadh and the rest of the amount promised by the two countries is said to be arriving this month. Besides, there are also reports that China is likely to provide $2 billion to support our forex reserves. However, experts believe that an IMF bailout is inevitable because all of the aid secured so far is good enough only to see us through June 2019.

 

About The Author