KARACHI: The foreign exchange reserves held by the central bank fell to $8.013 billion in the week ending Feb. 16, down from $8.057 billion a week earlier, the State Bank of Pakistan (SBP) said on Thursday.
The country's total forex reserves, including those of commercial banks, also declined by $51 million to $13.098 billion. The central bank reserves dropped by $44 million, while the reserves of commercial banks fell by $8 million to $5.085 billion. The central bank said it made debt repayments during the week.
The SBP's reserves are enough to cover around two months of imports, but analysts say the country needs to boost its foreign exchange buffers to avoid a balance of payments crisis. Pakistan's foreign exchange reserves have improved from a low of $2.9 billion in February 2023, thanks to official and bilateral loans, remittances from overseas workers, and a narrowing current account deficit.
The current account deficit, which measures the flow of goods, services and investments, shrank by 71 percent to $1.1 billion in the first seven months of the current fiscal year, compared with the same period last year, the SBP said.
However, the current account posted a deficit of $269 million in January, reversing a surplus of $404 million in December, as imports rose and exports fell. Analysts say Pakistan needs to secure another loan programme from the International Monetary Fund (IMF) to meet its external financing needs for the fiscal year 2023-24, although most of the current year's loans have been repaid or rolled over. The IMF's existing $3 billion stand-by arrangement with Pakistan expires next month, and the last review of the programme is scheduled for March.
Getting a new, much larger bailout from the IMF is considered the main priority and challenge for the incoming coalition administration, as the existing $3 billion programme expires next month. A $1 billion bond payment in two months will severely deplete the country’s foreign reserves.
At the end of 2023, the share of external debt in total public debt was 38.3 percent, which was reduced to 36.7 percent at the end of December 2023, according to the finance ministry.
During the caretaker government, the net external debt inflows were around $0.3 billion, which is lower than the preceding period. Furthermore, no expensive external borrowing was raised from commercial banks and international capital markets during the caretaker government, it said.
The conditions for forming a coalition government have been decided upon. After reaching this significant milestone, the focus is now on forming the cabinet, which includes the important position of the finance minister. The economic team faces increasing pressure to act quickly to meet the impending economic issues.