SBP forex reserves fall by $74m to $4.4bn

KARACHI: Pakistan’s foreign exchange reserves held by the central bank slightly decreased by $74 million to stand at $4.383 billion in the week ending May 5, the State Bank of Pakistan (SBP) said on Thursday.

SBP reserves are enough to cover one month of imports. The total reserves of the country dropped by $53 million to $9.990 billion. Reserves held by commercial banks, however, slightly rose by $21 million to stand at $5.607 billion.

The SBP attributed a fall in the reserves to the repayment of external debt. The reserve data was released at a time when the nation is experiencing its worst economic and political crisis, amidst a delayed International Monetary Fund (IMF) programme. Due to the violent riots that followed the arrest of former prime minister Imran Khan last week, the rupee was under severe pressure. The rupee slipped 2.9 percent to close at a record low of 298.93 per dollar in the interbank market.

In the absence of new funding support, Pakistan may default on its foreign obligations, according to international rating agencies and think tanks. Until the end of this fiscal year in June, Moody’s Investors Service expects Pakistan to be able to make its external payments. However, Pakistan's choices for funding after that point are quite uncertain. Given its extremely low reserves, Pakistan might default without an IMF programme.

The economy has been at a standstill for months, largely as a result of a severe balance of payment crisis, with declining SBP reserves barely covering a month’s worth of tightly restricted imports. This increased political unrest has coincided with this situation.

It is crucial to keep in mind that Pakistan’s funding choices are quite unpredictable even if it is able to pay the $3.7 billion due by June 30th. Without the protection of the IMF plan, it would be difficult to get external financing.

However, the IMF reportedly said that it and Pakistan are engaged to make progress on the loan review. Since the beginning of the political turmoil and law and order situation after it, analysts believe that the hopes to get an IMF bailout are low.