SBP’s reserves rise for second week, reach $8.221 billion

KARACHI: The foreign exchange reserves held by the central bank rose for a second straight week and stood at a more than five-month high of $8.221 billion as of Dec. 29, the State Bank of Pakistan (SBP) data showed on Thursday.

The reserves increased by $464 million in the reporting week, the highest gain since the week ended July 21. The reserves had risen by a total of $1.316 billion in the prior two weeks. The SBP's reserves are enough to cover around two months (1.84) of imports. The country's reserves increased by $365 million to $13.221 billion. However, the reserves of commercial banks dropped by $99 million to $4.99 billion.

The SBP, as per usual, linked a rise in its reserves to the official inflows in a weekly statement, thus the details of the sources of these inflows remained a mystery. However, analysts and markets believe these official foreign currency inflows originated from the multilateral partners.

The World Bank and the Asian Development Bank disbursed loans, which increased reserves in the previous week. This time, analysts believe the funds came from the Asian Infrastructure Investment Bank. “Due to multilateral dollar inflows after IMF staff approval, Pakistan FX reserves reached 23 weeks high. In just one month reserves have increased by $1.2 billion to reach $8.2 billion in spite of regular debt repayments,” said Mohammed Sohail, the CEO at Topline Securities.

“This will definitely help meet IMF December quarter NFA (net foreign assets) target,” Sohail added. Pakistan managed to avoid a sovereign default after obtaining a $3 billion bailout from the IMF in July. The IMF’s loan programme has helped address immediate external sector stability concerns by supporting the foreign exchange reserves.

Since Pakistan has been able to get funding from friendly nations and other multilateral lenders by complying with IMF conditions, the risk of default in 2024 has decreased substantially. Pakistan was able to obtain immediate disbursement of $1.2 billion from the IMF under its stand-by arrangement as well as financial support in the form of deposits and rollovers from friendly nations. Foreign exchange reserves have been supported by the ongoing decline in the current account deficit brought about by tight monetary policy and administrative measures, particularly import curbs. SBP Governor Jameel Ahmad told analysts after the monetary policy announcement last month that Pakistan was still optimistic it would meet its external funding requirements and that its debt payments were on track.

The governor stated that the total external financing requirement for FY24 is $24.6 billion out of which $5.4 billion has already been paid. According to Ahmad, the SBP estimates rollovers worth $12.4 billion of which $9 billion have already been committed. The net principal payable in FY24 stands at $4.3 billion.