SBP’s forex reserves rise $276 million to $3.19 billion

KARACHI: Pakistan’s foreign exchange reserves held by the central bank increased by $276 million to $3.19 billion in the week ending February 10, the State Bank of Pakistan (SBP) said on Thursday.

The country has $8.70 billion in reserves in total, including $5.50 billion held by the commercial banks.

The country is struggling to service extremely high levels of external debt, and barely has enough dollars to cover less than one month’s worth of imports.

After declining $1.685 billion during the last three weeks, the SBP reserves saw a slight increase.

The latest forex figures caught analysts off guard, and they were unable to identify the initial cause for the improvement in the reserves’ position.

“Not sure but after the currency depreciation and progress on the IMF front, the flows improved from the official channels. I don’t think we received any loans in this period,” said Fahad Rauf, the head of research at Ismail Iqbal Securities.

Pakistan has taken painful fiscal consolidation measures to unlock funding from a $6.5 billion International Monetary Fund (IMF) loan programme.

Pakistan’s external debt servicing obligation for FY2023 is $23 billion, of which $6 billion has been repaid and $4 billion rolled over, leaving $13 billion yet to be funded. There is further repayment obligation of $75 billion during FY2024-2026.

Despite a severe import crunch leading to significant unemployment, the current account deficit is running at $7-8 billion and there is a substantial backlog of imports, dividend and other remittances, according to the Pakistan Business Council.

“Whilst the IMF programme is critical to restore confidence of friendly nations to provide assistance, in itself, it will not be sufficient to meet debt obligations unless they are significantly reprofiled. Nor will it provide the space to implement fundamental reforms. Short-term rollovers will not suffice,” it said.

Analysts expect forex reserves to start improving once IMF staff level agreement is reached in the coming days, full recovery towards more comfortable levels (2-3 months of import cover) is likely to take time.

This is due to a combination of $400-500 million of monthly current account deficit, $3-4 billion backlog relating to containers stuck on ports as well as $1-2 billion of proceeds relating to foreigner dividend and capital repatriations.

“We expect forex reserves to rise to $6.6 billion by end-June (1.2 months import cover) gradually increasing to around $12-14 billion by June 2024 (2.0-2.5 months of import cover),” said Arif Habib Limited in a note.