Karachi, September 14, 2023 – The governor of the State Bank of Pakistan (SBP) has revealed that Pakistan will require $24 billion for foreign repayment during the fiscal year 2023-24.
This announcement comes as the country grapples with its financial obligations and seeks avenues to manage its external debt.
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Analysts from Insight Securities, who were present at the briefing on Thursday, quoted the SBP governor as stating that the $24 billion needed for the ongoing fiscal year includes a significant interest payment component, totaling $3.3 billion.
The governor elaborated that $11 billion is expected to be rolled over, with $8 billion already having been rolled over or secured through commitments. Furthermore, authorities anticipate an additional $3 billion to be rolled over, leaving Pakistan with a net repayment of $8 billion. The governor underscored that planned inflows for the fiscal year stand at $14 billion.
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In terms of monetary policy, the SBP’s latest Monetary Policy Committee (MPC) meeting decided to maintain the policy rate at a substantial 22 percent, contrary to street consensus expectations of a 100-200 basis point decrease. The decision was underpinned by a declining inflationary trend, which had peaked at 37.9 percent in May 2023 and moderated to 27.4 percent by August 2023.
The committee emphasized that despite an increase in global oil prices and subsequent domestic price adjustments, inflation is anticipated to follow a downward trajectory in the second half of the fiscal year 2023-24. Recent administrative measures targeting food hoarding and speculative foreign exchange trading are also expected to contribute to the reduction of inflation in the coming months.
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The SBP reiterated that current monetary policy settings are sufficient to achieve a real positive interest rate on a forward-looking basis.
Responding to inquiries, the governor of SBP disclosed that the current account deficit for August 2023 is projected to be $160 million, a notable decrease from the $809 million recorded in the preceding month. The central bank noted several key developments since the last MPC meeting, including an improved agricultural outlook, rising global oil prices, a current account deficit in July following four consecutive months of surplus, and recent government efforts against hoarders and smugglers.
The committee acknowledged slight improvements in high-frequency data indicators, such as increased sales of petroleum products, cement, and fertilizer in August 2023. Additionally, the easing of administrative controls on imports has led to improved input availability.
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The committee emphasized that domestic demand may remain restrained due to monetary tightening and fiscal consolidation efforts. Inflation, which reached its zenith at 38 percent in May 2023, has since decreased, primarily due to the high base effect. It is expected to continue on a downward trajectory throughout the fiscal year 2023-24.
According to the SBP, the latest inflation survey indicates that both individuals and businesses have revised their inflation expectations due to abrupt foreign exchange fluctuations. However, the SBP anticipates that administrative measures will help stabilize the foreign exchange market.
The SBP underscores the importance of a prudent fiscal policy to bring inflation towards its medium-term target of 5 percent to 7 percent by the end of the fiscal year 2024-25, as the country navigates its complex economic challenges and strives for financial stability.
