SBP’s forex reserves decline to near nine-year low

KARACHI: The State Bank of Pakistan’s (SBP) foreign exchange reserves fell to $6.1 billion in the week through December 16, their lowest level since April 2014, the central bank’s weekly data showed on Thursday.

The SBP’s reserves declined $584 million. The central bank attributed the dip to external debt repayments.

The SBP’s reserves have dwindled to the lowest level in nearly nine years, with only enough to cover five weeks of imports.

Pakistan’s total foreign reserves fell $570 million to $12 billion. The reserves of commercial banks declined by $14 million to $5.9 billion.

Analysts said the country needs to secure the external inflows as quickly as possible to secure a looming default on its external obligations. It also needs to keep the IMF loan programme on track.

“The reserves are at dangerously low levels. The quality of reserves is also low as these are built on deposits from friendly countries,” said Fahad Rauf, the head of research at Ismail Iqbal Securities.

“Pakistan needs to act quickly to either get flows from Saudi Arabia or IMF,” he added.

The IMF’s ninth review has been pending since September. It has raised concerns about the fiscal slippages emanating from a combination of the devastating floods and revenue shortfall, particularly from the petroleum development levy. Additionally, there have been issues with the budgeted flood rehabilitation expenditure's accuracy.

“Survival without the IMF is not an option given the scale of the external financing needs, where the majority of the funding is linked to an IMF endorsement,” according to a report from Arif Habib Limited. The report expects the IMF bailout package to resume in the first quarter of 2023.

“We expect a host of revenue and fiscal consolidation measures including the imposition of GST on petroleum products and removal of GST exemptions, gas tariff hike, rationalization of electricity tariffs, etc. to get the program back on track and to pave the way for release of the next tranche of $1.2 billion in February 2023,” it said.

With the 10th review also due in early 2023- combining the two reviews remains a possibility though this may further delay the IMF disbursement, it added.

The report believes the IMF programme is indispensable over the medium to long term.

Pakistan had a total external debt servicing obligation of $23 billion in FY2023, of which $6 billion has been repaid, and $4 billion rolled over. While the government had received commitments to fund the remaining amount, delays in IMF 9th review have cast a shadow on those commitments.

Moreover, with further repayment obligations of $75 billion during FY2024-26, the external account remains in a tight spot. The government estimates disbursements of $103 billion during the next three years to finance the repayments and the current account deficit using a combination of bilateral, private debt, and multilateral flows.

“Unlocking these flows, however, requires Pakistan to stay engaged with the IMF for the long term. We expect Pakistan to complete the current program with another program post-General Elections (2H2023) which will be essential to address both long-term structural issues and external financing needs,” the report said.