Forex reserves hit four-year high of $18.20 billion

KARACHI: Pakistan’s foreign exchange reserves jumped to a four-year high of $18.201 billion during the week ended June 26, the central bank’s data showed on Thursday.
The ramp up in reserves is attributed to $756 million receipts from World Bank and upswing in remittance inflows. Earlier, the country’s reserves reached an all-time high of $18.243 billion in 2010-11.
Foreign currency holdings of the State Bank of Pakistan rose to $13.08 billion.
At the current levels, the reserves are sufficient to cover imports of more than four months. Analysts said that the forex reserves are likely to remain on the upward trajectory in the times ahead. “With the expected release of $506.4 million tranche from the IMF to Pakistan under its Extended Fund Facility (EFF) arrangement, the forex reserves would climb to an all-time high of $18.707 billion, adequate for five months of import cover,” an analyst said.
The IMF Executive Board successfully completed the seventh review of Pakistan's economic performance under the EFF programme last week.
“The forex reserves figures has confirmed the workers’ remittances reached a record $17 billion during the recently concluded fiscal year 2014/15,” the analyst said.
Remittances numbers are yet to be released by the State Bank of Pakistan. Remittances rose to $16.7 billion in July-May FY15 as against $14.338 billion in FY14.
Most analysts believe that the central bank continues to build up reserves through borrowing from external creditors and international market, which is causing piling up of debt.
“The unprecedented surge in foreign inflows builds up crucial foreign exchange reserves, but there are concerns over the accumulation of external debt.
It is encouraging that the reserves are shoring up, but increasing debt obligations will pose a risk to the sustainability of the foreign exchange reserves.
There is less pressure on the foreign exchange earnings of the country in the short-term, but the debt serving burden of the country will rise in the next five years.
The maturity of 10-year Eurobonds issued in FY06 ($500 million) and FY07 ($750 million) is due in FY16 and FY17. Moreover, the repayment of rescheduled Paris Club debt under Official Development Assistance will start from FY17, while servicing the Extended Fund Facility programme with the IMF will begin in FY18; and the five-year Eurobond issued in April 2014 and raised $1 billion will mature in FY19. External debt servicing had always been a much concern for the economy due to an unprecedented rise in the volume of foreign loans since 2008, which was largely dominated by the IMF.
Pakistan paid $874 million in debt servicing to the IMF during the first half of the current fiscal year.
Some analysts expressed surprise that despite substantial increase in the forex reserves, the exchange rate remained steady at 102 in the interbank market. As exports are on the decline, imports are increasing and it seems that the currency will be overvalued soon. The rupee could face downward pressure.
The increase in the reserves is also an indication that the SBP is purchasing dollars from the forex market.