SBP foreign reserves drop by $119m to $4.193bn

KARACHI: Foreign exchange reserves held by the State Bank of Pakistan (SBP) dropped by $119 million to $4.193 billion in the week ending May 19, the central bank said on Thursday.

SBP attributed a fall in the reserves to the country’s debt repayments. The central bank reserves are barely enough to cover a month’s imports. Meanwhile, total reserves of the country dropped by $206 million to $9.731 billion. The reserves of commercial banks also fell by $88 million to $5.538 billion.

Pakistan is experiencing its worst economic crisis, and a delay in the International Monetary Fund bailout has sparked fears of a default. Analysts note that an improvement in the nation's current account balance contributed to the stabilisation of foreign exchange reserves.

“The reserves have stabilized somewhat, thanks to current account management. However, the pressure on the rupee is mounting as IMF revival is not in sight,” said Fahad Rauf, head of research at Ismail Iqbal Securities. “The only support is coming from China and would continue to be critical for Pakistan to survive without IMF,” he added.

Pakistan posted a current account surplus of $18 million in April from $750 million in the previous month, as a result of falling imports and lower remittances. The country’s current account deficit for the 10 months (July through April) of the current fiscal year was $3.3 billion, which was 76 percent lower than the $13.7 billion deficit for the same period last year.

Global rating agencies are concerned that if the IMF programme is delayed indefinitely, Pakistan would likely have enough external liquidity to meet its financing needs through the month of June, but default risks will increase dramatically in the next fiscal year (FY2024). Finance Minister Ishaq Dar, however, has asserted that there is no risk of a country's failure to repay its foreign debts, despite the IMF deal's delay.

The SBP's foreign exchange reserves are expected to fall below the critical level of $2 billion by the end of September, according to Miftah Ismail, a former finance minister of Pakistan, who stated last week that the country's economic condition would be "very difficult" in the months to come. Ismail claims that within the next two months, Pakistan has to pay $3.7 billion in debt amortisation and $400 million in interest payments.