SBP’s forex reserves fall to $7.5 billion

KARACHI: The central bank’s foreign exchange reserves dropped by $327 million or 4.2 percent as of November 25, with higher external debt repayments and dried dollar inflows, data from the State bank of Pakistan (SBP) showed on Thursday.

The foreign reserves with the SBP stood at $7.5 billion, barely enough to cover a month’s imports. The country’s total reserves fell $267 million or 2 percent to $13.4 billion. The reserves of commercial banks also declined $60 million or 1 percent to $5.8 billion.

The most recent reserve data was released right before the government had to fulfill one of its obligations related to foreign debt. On December 2 (Friday), three days prior to the bond's due date, it is slated to repay a $1 billion Sukuk bond.

Analysts noted that with recent inflows of $500 million from the Asian Infrastructure Investment Bank, the reserves appear to be well-protected. But what worries them is the ambiguity surrounding the International Monetary Fund (IMF).

According to reports, the revenue and spending plans presented by the Pakistani government have not satisfied the IMF. Due to the slow pace of negotiations, it appears that the ninth review of the IMF Extended Fund Facility may not be finished soon. As a result, a $1.18 billion tranche may not be released this year. Other international creditors' loan disbursements are also being hampered by the ninth review's delay, which is further straining the country's forex reserves and the currency.

However, Finance Minister Ishaq Dar said the government was committed to completing the IMF programme and it would pay back the international bonds on time. Analysts expressed great concerns about the decline in remittances and a delay in expected support from friendly countries and other funding. However, the SBP expects forex reserves to be higher at the end of FY2023 than they are at the moment given the solid pipeline of inflows versus external payment commitments.

The country’s economy is under pressure from a number of factors, such as a shortage of dollars and a further downgrading into junk status by global rating agencies. However, the current account deficit during the first four months of FY2023 fell to $2.8 billion, almost half the level during the same period last year. The improvement was mainly driven by a broad-based 11.6 percent fall in imports to $20.6 billion, with exports increasing by 2.6 percent to $9.8 billion.

The country is scheduled to repay foreign debt and debt servicing worth totaling to $26.3 billion over the next 12-month (November to October), Optimus Capital Management reported citing State Bank of Pakistan's (SBP) data.

Twelve months forward external principal and interest liabilities surged to $26.3 billion, which includes $8.9 billion in December 2022 and January 2023, the securities firm said in a short commentary.