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SBP forex reserves fall $170m to $4.04bn

By Our Correspondent
April 14, 2023

KARACHI: Foreign exchange reserves held by the State Bank of Pakistan (SBP) dropped by $170 million to $4.038 billion in the week ending April 7, the central bank said on Thursday, ascribing the decline in the reserves to debt repayments.

The reserves held by the central bank can hardly cover one month's worth of imports. Pakistan’s total reserves fell by $195 million to $9.564 billion. The reserves of commercial banks decreased by $26 million to $5.526 billion.

Pakistan, according to a local brokerage firm, has paid coupon payments on various sovereign bonds. “Based on our info, Pakistan has made coupon payments on different global bonds. About $125 million has already been paid while the rest is due on 15 April and will be paid on time,” said Mohammad Sohail, CEO of Topline Securities on its official Twitter handle.

“After this another big payment is due in October 2023. And then there is a maturity of $1 billion in April 2024,” he added. Governor State Bank of Pakistan Jameel Ahmad stated at an analysts' briefing held after the monetary policy committee meeting on April 4 that the country’s total debt repayments for the current fiscal year had been at $23 billion. “Of this amount, $18.5 billion have either been rolled over or repaid, while $4.5 billion remains outstanding. Of this remaining, $4.5 billion, only $2.2 billion needs to be repaid, while the rest will be rolled over or refinanced,” he explained. The commercial loan component in the $2.2 billion repayment is only $100 million. Pakistan has been dealing with a delay in the IMF loan programme, a sharp reduction in its foreign exchange reserves, high inflation, and domestic political unrest. The persistent decline in the forex reserves put pressure on the rupee.

As the resumption of the $6.5 billion bailout is crucial for the country to avoid default and boost its foreign exchange reserves, the country is waiting for the IMF loan. The country’s consumer price inflation increased to a record 35.4 percent in March compared to the same month last year.

Pakistan has already taken all the necessary prior actions to secure the IMF loan tranche of above $1 billion. However, the only cause of the programme's pause is pledges from friendly countries.

The IMF wants $6 billion in commitments from friendly countries and multilateral and bilateral lenders to fill the shortfall in external funding. Saudi Arabia has pledged $2 billion, while the nation is awaiting the United Arab Emirates confirmation of $1 billion. A staff-level agreement will be reached once the $1 billion is confirmed.

“In isolation, Eurobond payments, especially the interest payments are not an issue, since the amounts are relatively smaller. However, when you combine overall debt repayments, the case of a restructuring is strong,” Fahad Rauf, head of research at Ismail Iqbal Securities, said.