SBP forex reserves fall by $179m to $3.912bn

KARACHI: Pakistan’s foreign exchange reserves held by the central bank decreased by $179 million to stand at $3.912 billion in the week ending June 2, the State Bank of Pakistan (SBP) said on Thursday.The SBP’s reserves are barely enough to cover a month’s imports. This brings the total reserves of the country to $9.334 billion, with reserves of commercial banks remaining flat at $5.422 billion. The SBP attributed a fall in the reserves to the repayment of external debt.

The SBP's foreign exchange reserves have significantly decreased, according to analysts, as a result of debt repayments and the lack of progress on a deal to receive funding from the International Monetary Fund (IMF). The Pakistani rupee has also depreciated by 28 percent so far this fiscal year.The current account deficit (CAD) sharply narrowed to $3.3 billion in 10 months of the current fiscal year from $13.6 billion in the same period last year. This was due to a sharp decline in imports, which dropped from $58.7 billion to $45.2 billion.

Reduction in imports washelped by sharp currency devaluation along with tight monetary, fiscal policy, and administrative measures such as import curbs. Exports also fell by 14 percent to $23.2 billion in July-April FY2023. Falling commodity prices and a worldwide recession brought on by rising interest rates were the main causes of the reduction in exports. Workers’ remittances decreased from $26.1 billion in July-April FY2022 to $22.7 billion in July-April FY2023. The drop in remittances is mostly due to the stark disparity in rates between the kerb and interbank markets, which encourages Pakistanis living abroad to send money through unauthorised means.

“For FY23, we expect CAD to clock in at $3.5 billion (0.9 percent of GDP) as against $17.2 billion (4.5 percent of GDP) in FY22,” said an analyst at Topline Securities in a note. “Monetary and fiscal tightening is expected to continue during FY24 and we expect the government to start negotiations for another IMF programme soon. We expect that the next IMF programme would include some kind of external debt restructuring,” the analyst added.