Economy review $7bn debt servicing a challenge to

economy
By Shahid Iqbal
Published on Sep 15, 2914

KARACHI: External debt servicing rose to an alarmingly high level as it reached

close to $7 billion in FY14 which is almost 80 per cent of the current reserves of
the State Bank while the reserves are declining on week on week basis.
A recently produced data of the State Bank showed the country paid $6.820bn as debt
servicing in FY14, including $5.910bn as principal amount and $915m as interest.
Know more: Reserves shrink as SBP repays debt
The government, trapped in floods and political crisis, may face another serious turmoil
by the end of this fiscal year if IMF and other donors did not release the promised loans.
The gravity of the situation is visible in the wake of increasing trade gap, with no foreign
inflows, no release of instalments from IMF and no interest of foreign investors in the
country.
The disappointing foreign investment has developed another difficult situation under
which repatriation of profits and dividends on foreign investments have also reached
close to $1bn.
The sit-in at Islamabad and the flash floods throughout the country, which have hit both
people and their belongings, including their crops, animals and houses, may convert
debt servicing into a serious financial crisis.
As the Nawaz government assumed charge in Islamabad 14 months back, it averted
the financial turmoil as reserves of the State Bank had fallen above $3bn and rupee had
started slipping from Rs98 to Rs110 against the dollar.
Pakistan succeeded to borrow from international market, though at a very high rate, but
it boosted the countrys image, encouraging IMF and other donors to help Pakistan.
However, situation seems to have changed again as exports have dropped, and imports
jumped by 32pc in the first two months of the current fiscal year and rupee has lost 4pc
value to hit Rs102-3 against the dollar.

Though remittances are increasing at the rate of more than 12pc, it would not be
enough to absorb the future shocks.
Analysts believe that the first quarter of the current fiscal year could be a shock to
economic managers of the country as it would result in wide trade gap that could
enlarge the current account deficit. Trade deficit in August this year was $2.8bn which is
76pc higher than August of last year.
The current account deficit in July was minus $454m, which was much higher than
minus 125m of last year.
In FY14, the deficit was $2.97bn against $2.5bn in the previous year.
The July deficit shows that the trend was not favourable for an economy which is facing
many challenges.
Published in Dawn, September 14th , 2014