The IMF (International Monetary Fund) Staff Level Agreement (SLA) is still pending. The State Bank of Pakistan (SBP) has only $4.3 billion in foreign exchange reserves, with no clarity on the repayment of its foreign debt, which has not yet been promised to be repaid in the coming months.
There is also non-payment of imported goods (stuck in ports) and payment of services. Repatriation payments for profits that have been queued for too long.
Apart from these, there are essential or vital imports. Without these essentials, life in villages can be difficult. This is a really big challenge, to say the least. Even if we hit our Staffing Level Agreement (SLA), we’ll be a lifeboat by June.
The question is what happens next. The International Monetary Fund seeks loan guarantees from friendly countries. Without building or increasing reserves, even the IMF and other reserve sources are insufficient to fully overcome the default challenge.
Friendly countries are interested in investing, and money flows in slowly and has a medium to long-term impact. However, between $2 billion and $3 billion must flow before the IMF’s Executive Board approves it. The SLA awaits these assurances.
Meanwhile, the government plans to maintain essential imports, especially if there is no influx. A country can only finance its external debt through new debt or non-debt capital flows.
Therefore, the current account must be balanced and foreign exchange earnings (exports and remittances) should be directed to imports. And once the debt moratorium is imposed, it will be very difficult if not impossible to open LCs. Banks charge insurance premiums.
If a default occurs, it could affect exports, as relations between foreign banks and companies operating in Pakistan would be strained, which could also affect exports. The increase in energy costs and barriers to the import of raw materials also affect exports.
Textiles and other export-oriented sectors have already been hit. and finally,
