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SBP forex reserves rise to $4.3 billion on Chinese inflow

By Our Correspondent
March 10, 2023

KARACHI: Pakistan’s foreign exchange reserves held by the central bank have increased by $487 million, bringing the total to $4.301 billion in the week ending March 3 as the country received loans from China.

The total reserves of the country are $9.754 billion, of which $5.453 billion are held by the commercial banks, State Bank of Pakistan (SBP) said on Thursday.

The SBP attributed a $500 million commercial loan disbursement from China to the increase in foreign exchange reserves. Central bank reserves are enough to cover around a month of imports. Since February 3, the SBP's reserves have increased by $1.4 billion, according to Arif Habib Limited.

Last week, the Industrial and Commercial Bank of China (IBC) approved the rollover of a $1.3 billion facility that has been repaid by Pakistan to ICBC in recent months. The facility would be disbursed in three installments; the first one of $500 million had been received by the SBP on Friday.

The country had already received a $700 million loan from China last month. A total of $1.2 billion in loans have been secured from China.

Investors are becoming more concerned about a potential default as Pakistan is depleting its foreign reserves. The government is struggling to make ends meet while negotiating with the IMF for the remaining $6.5 billion in bailout funds.

Finance Minister Ishaq Dar said that his nation was “extremely close” to concluding a staff level agreement with the IMF, which would be a crucial lifeline for containing a balance of payment crisis. The country’s reserves are still under pressure, primarily because of hefty foreign debt repayments and a lack of external financing in the face of a delay in the renewal of the IMF loan programme. SBP Governor Jameel Ahmad said after steps were taken to curb imports, the current account deficit is expected to be $7 billion for the current fiscal year as opposed to the budgetary target of $10 billion.

He said this during a meeting of the Senate Standing Committee on Finance. Last month, global rating agency Moody’s cut Pakistan’s sovereign credit rating by two more notches to ‘Caa3’, saying the country’s increasingly fragile liquidity “significantly raises default risks”. Moody’s noted that even though this year’s external payment needs may be met, the liquidity and external position next year will remain extremely fragile.

Pakistan’s external debt repayments will remain high for the next few years, it said. Moody’s estimates Pakistan’s external financing needs for fiscal 2024 are around $35-36 billion. The country has about $25-26 billion worth of external debt repayments (including interest payments) to make in fiscal 2024.

The weak reserves put pressure on the local currency.

“US Dollar has gained 55 percent against Pak Rupee in 1 year. From 180 to 280, the biggest 1-year fall after 50 years. Pakistan's debt repayment is not sustainable. Need debt relief/deferment/restructuring for economic recovery,” said Mohammad Sohail, CEO of Topline Securities on his official Twitter handle.