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Pakistan could become ineligible for World Bank loans due to its declining foreign reserves

Pakistan could become ineligible for World Bank loans due to its declining foreign reserves

Tue Aug 15 2017

Islamabad, Aug. 15 -- Pakistan could become ineligible for financial aid from one of the two main arms of the World Bank Group - the International Bank for Reconstruction and Development (IBRD), as the country's official foreign currency reserves are rapidly declining.

A loan-seeking country should have official foreign currency reserves equivalent to three months of import bill to qualify for IBRD loans.

Pakistan's reserves stood at USD 14.3 billion on August 4 this year and these reserves include USD 3.9 billion in short-term borrowings by the central bank.

The Express Tribune quoted sources in a multilateral lending agency and the Ministry of Finance as saying that that gross foreign currency reserves may slip below the threshold of three-month import cover either in the last week of August or the first week of September.

Pakistan's Finance Ministry will have to immediately look for ways to increase its foreign currency reserves in order to rein in the declining reserves

Pakistan's official foreign currency reserves have dropped $4.2 billion since the end of the International Monetary Fund's (IMF) assistance programme 11 months ago.

A spokesman for the Ministry of Finance said that the government expected a significant increase in foreign direct investment and other inflows including official ones as exports and remittances returned to the growth zone.

He informed that the government was also working on more measures which would be rolled out after finalization.

According to the report, the government was reviewing different options which include incentives for expatriates to invest in Pakistani dollar-denominated bonds to keep the reserves above the three-month import bill.

The government is also considering of more restrictions on imports and steps that will encourage exporters to bring back export proceeds.

Pakistan's total imports swell to a record $53 billion in the previous fiscal year and keeping that in view, the three-month average imports came in at $13.3 billion.

The World Bank Group comprises five institutions. Its two arms - the IBRD and International Development Association (IDA) - give loans to governments.

The IBRD offers loans for projects, programmes or policy purpose as well as hedging products to help manage the currency and interest rate risk exposures.

IDA is a concessionary lending window that extends funds to the poorest developing countries.

In case, Pakistan borrowing from the World Bank Group will be limited to the IDA if it gets disqualified for IBRD loans.

Pakistan's creditworthiness would get affected if the World Bank stopped Islamabad from IBRD borrowing.

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