KARACHI Aug 2 (TNS): Currency experts said pressure is mounting on the exchange rate as reserves fall. Dealers in the interbank market said the dollar rate, after reversing from Rs108 to Rs105.40, has remained stable because of a strong influence of the SBP. However, they said the dollar rate, particularly in the interbank market, can see another appreciation if reserves continue falling.
State Bank of Pakistan reserves decreased by $3.9bn between October and July 21; notwithstanding commercial borrowing of more than $4.4 billion during 2016-17.
The government accumulated about $4.4bn through commercial banks in 2016-17. Commercial borrowing is costlier because commercial rates are usually higher than ones offered by bilateral and multilateral sources, official data shows. The government has yet to release the final figure for debt servicing on external loans. But the collective amount for the first three quarters has already surpassed .
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2bn. The country paid $1.55bn in the first quarter, $1.25bn in the second quarter and $2.43bn in the third quarter.
Debt servicing in the last quarter can be around $2bn, which will bring annual debt servicing to more than $7bn. This will be a record and indicates heavy outflows in the future, the pattern shows. Debt servicing was $5.31bn in 2015-16 and $5.4bn in 2014-15. In the presence of a record current account deficit of $12bn in 2016-17, increasing debt servicing and falling reserves can lead to a bigger exchange rate jolt than the one witnessed on July 5 when the dollar suddenly appreciated against the local currency by 3.1 per cent. The SBP has to use its reserves to meet the current account deficit. An increasing current account deficit and decreasing foreign exchange reserves are alarming for the country facing a trade deficit that is bigger than its total exports.
The republic will have to borrow more from commercial banks in 2017-18 since outflows are a lot higher than expectation. Meanwhile, foreign exchange inflows like remittances are in decline, currency experts say. The government borrowed $1.5bn from commercial banks in June, which breached the target set by the government for 2016-17. The target for borrowing from commercial banks was $2bn, but it rose to $4.4bn by the end of June.
