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Dilemma of Pakistan’s external financing

According to newspaper reports, the foreign loans of the country have steadily been piling up as the current account deficit are increasing day by day and external financing needs a whopping $13 billion during the next fiscal year. In a bid to decrease imports, the government has depreciated the value of Pakistani rupee, increasing the volume of foreign loans by the same percentage. It is difficult to understand why the policymakers are ever ready to knock down their wisdom when they go to any decision making exercise. Depreciation of rupee has always brought disaster for the national economy and it is not a one day experience, but the nation suffered years of underdevelopment due to this unwise step in the past. Reports suggest the State Bank of Pakistan could freeze the foreign currency accounts after it borrowed $6.12 billion from domestic commercial banks to prop up the fast-depleting gross foreign exchange reserves. The government of the PML-N is probably going to commit the same mistake in its closing days as it had done after the country tested nuclear devices in 1998 and had frozen the foreign currency accounts of the private depositors. A government official claimed that the country needed up to $13 billion which is equal up to 5.3 percent of the Gross Domestic Product. The net financing gap this year will be up to $2.5 billion, but nothing can be said for sure.

According to the World Bank the macroeconomics conditions of the country have significantly worsened. The recent devaluation has added insult to injury and some experts believe the government took this step on the insistence of the International Monetary Fund. The Finance Ministry has already admitted that its public debt, exclusive of $2 billion private sector external debt obligations, have reached $6.1 billion. In this situation, the requirements of the gross external financing would reach $20.6 billion, which are more than $2.5 billion than the finance ministry claimed. Ironically, the government officials claim the country has continuously maintained the foreign exchange reserves at a healthy level despite internal and external pressures. The overall situation shows the government is likely to consult the IMF again and this would add extra burden on the economy. The Finance Ministry has already been rejecting some reports about gross external financing requirements of the country during 2018 and no one knows who is telling the truth.

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