SBP sees slight decline in foreign reserves amid debt payments

KARACHI: The State Bank of Pakistan (SBP) said on Thursday its foreign exchange reserves fell by $32 million to $8.15 billion in the week ending July 27, mainly due to external debt repayments.

The country's total reserves also declined by $71 million to $13.46 billion, while the reserves of commercial banks dropped by $39 million to $5.30 billion, the SBP said in a statement.

"... SBP reserves decreased by $32 million to $8.153.8 billion on account of debt payments." the central bank said.

Pakistan expects to roll over about half of its maturing debt in fiscal year 2024, which started in July, and receive inflows from multilateral and bilateral sources that will help boost its reserves and contain its current account deficit, the central bank governor said earlier this week.

Governor Jameel Ahmad told analysts in a briefing that The country's external debt repayments for this fiscal year are slightly less than $24.5 billion, including principal repayment of around $21 billion and interest payments of $3.3 billion.

Out of the $21 billion principal repayments, the SBP expects a rollover of around $11.3 billion, of which $5.3 billion has already been agreed and another $6 billion is expected to be rolled over, he said.

The remaining $10 billion includes $1.5 billion that was repaid in July and $8.5 billion that will have to be repaid further.

The SBP expects inflows to be close to double this $8.5 billion in FY2024 from various sources, including multilateral and commercial loans during the current quarter.

The forex reserves are expected to cross $10 billion by the end of this fiscal year, according to the SBP. The country's imports are expected to stay lower, which will help limit the current account deficit this fiscal year.

“With the current account balance recording a surplus for the fourth consecutive month in June, the cumulative current account deficit in FY2023 substantially narrowed to 0.7 percent of GDP from 4.7 percent in FY2022,” the SBP's latest monetary policy statement said. “The MPC noted that this improvement primarily stems from policy-induced compression in imports,which more than offset the decline in exports and workers’ remittances during the year.”

Going forward, the current account deficit is expected to remain contained in the range of 0.5 to 1.5 percent of GDP in FY2024. “This assessment takes into account the impact of evolving domestic and global economic conditions. The MPC expects that the current outlook for the global commodity prices along with moderate domestic economic recovery will keep the imports range-bound.”

On the financing side, the prospects of multilateral and bilateral inflows have considerably improved after the IMF stand-by arrangement. “This is important in the context of building external buffers and meeting the near-term external financing needs. Further, the market-determined exchange rate will continue to serve as first line of defense against external shocks and support reserve build-up.”