SBP forex reserves fall by $21m to $7.615bn

KARACHI: The foreign currency reserves held by the central bank fell by $21 million to $7.615 billion in the week ending September 28, the State Bank of Pakistan (SBP) said on Thursday.

The reserves of commercial banks also dropped by $110 million to $5.415 billion. The country's total foreign exchange reserves decreased by $131 million to $13.03 billion. The SBP’s forex reserves are enough to cover 1.78 months of import payments.

According to analysts, the reserve positions are still weak. However, the pressure on forex reserves would likely lessen in the coming months due to a decline in global oil prices, an improvement in remittances, a stable currency, and an expected improvement in the country’s current account balance.

A significant drop in oil prices has provided some relief to countries that import oil, including Pakistan. On the government front, preparations are being made for the upcoming IMF review, which is expected to take place in late October or early November.

The latest trade deficit figures for Pakistan unveiled a positive trend, showing a significant 31 percent month-on-month reduction to $1.48 billion in September 2023.

This improvement, coupled with remittances ranging between $2.2 billion to $2.4 billion, raises the prospect of a potential current account surplus. This development could act as a counterbalance to the current account deficit observed in the preceding months of July and August 2023.

The country’s trade gap fell 42 percent year-on-year to $5.3 billion in the first quarter (July-September) of the current fiscal year. The current account deficit in August was $160 million, which was a 79 percent decrease from the same month a year earlier. The current account deficit dropped 54 percent to $935 million in the first two months of FY2024. This decrease was due to a drop in imports. Pakistan’s interim government is working to secure the $26 billion in external financing required to meet its foreign debt commitments and fund the current account deficit. The government is attempting to obtain $6.3 billion in concessionary financing from multilateral creditors, according to interim finance minister Dr Shamshad Akhtar. A nine-month, $3 billion bailout package was already approved by the IMF in July.

The finance minister said that efforts were being made for a bilateral assistance of around $11 billion. These are mostly maturing loans that the country is not in a position to repay and requesting the bilateral creditors for further extension.