ISLAMABAD - Pakistan would once again tap international capital market to issue Sukuk bond within next couple of months to generate at least $1 billion to build the country’s foreign exchange reserves.

“The process of issuance Sukuk bond has started already which will be completed in end of November or early December,” said Finance Minister Ishaq Dar in a brief chat with The Nation. The government is eyeing to generate at least $1 billion from the issuance of Sukuk bond. However, the exact amount would be decided after a response from the international market subsequent to road shows.

The Ministry of Finance had already sought permissions of the federal cabinet for borrowing from international capital market. The federal cabinet headed by Prime Minister Shahid Khaqan Abbasi deferred it till next meeting with a directive to present a comparative analysis of interest rate. The government’s plans to raise loans from the international market by issuing bonds would support the foreign exchange reserves, which are under pressure due to widening trade deficit.

Pakistan’s external sector is under pressure due to widening of current account deficit, which is eroding the foreign exchange reserves of the country. The reserves are sharply tumbled by over $4 billion in one year to $19.8 billion. The current account deficit had widened 102 percent to $2.601 billion in the first two months of the current fiscal year, as higher imports growth offset the improvement in exports.

The country’s trade imbalance had recorded at $9.01 billion during July-September of the year 2017-18 as against $7 billion during same period of the previous year showing an increase of 29.75 percent. Topline Research, in its recent report, said that projected Current Account Deficit during FY18 to be in the range of $16.0-16.5 billion (5.0-5.5pc of GDP), up from $12.1 billion in FY17. “This will likely result in further depletion of forex reserves, which we expect to further fall by $3 billion in FY18 to $13 billion,” it stated.

The government, in the budget for the ongoing financial year 2017-18, had projected to generate $1 billion from issuing Sukuk bond in the international market. Issuing bond could boost the declining foreign reserves of the country. Pakistan had successfully tapped international capital market four times since 2014.

Meanwhile, the country would repay $7.4 billion on external debt including $1.6 billion on interest payment during the current fiscal year. Similarly, the country would repay $4.263 billion in 2018-19, $7.07 billion in 2019-20 and $4.571 billion in 2020-21. The World Bank, in its recent report, noted that Pakistan’s external balance is particularly vulnerable given the persistent current account deficit, affecting the country’s reserve position. Improving the external balance hinges upon a revival in exports, a slowdown in imports, and stable remittance flows. In absence of any of these factors, the persistent current account deficit will put further pressure on already dwindling reserves.