SBP forex reserves grow for second week to $8.018bn

KARACHI: Pakistan’s central bank reserves increased for the second consecutive week, reaching $8.018 billion as of March 15, up from $7.913 billion in the previous week, the State Bank of Pakistan (SBP) said on Thursday.

That is an increase of $105 million from the previous week. The country’s forex reserves rose by $239 million to $13.391 billion. The reserves of commercial banks also increased by $134 million to $5.373 billion.

The reserves of the SBP are sufficient to cover imports for about two months. In a weekly statement, the SBP did not provide a reason for the increase in its foreign reserves; nonetheless, analysts surmise that the foreign reserves were bolstered by improvement in the current account balance.

"Foreign exchange reserves of public in Pakistani banks are on the rise, with an increase of more than $100 million observed last week alone," said Mohammed Sohail, the CEO at Topline Securities Limited.

“Since January 2024, public dollar deposits with banks have surged by close to $1 billion. With signs of economic stability and consistent FX reserves, individuals are increasingly opting to deposit their dollars into bank accounts.”

The SBP, in its monetary policy statement issued earlier this week, said the external current account balance is turning out better than anticipated and has helped maintain foreign exchange buffers despite weak financial inflows.

Financial inflows showed a modest decline in January amidst continuing public debt repayments in the absence of significant official and private sector inflows, it added. Pakistan posted a current account surplus of $128 million in February, compared with a deficit of $303 million a month before. The current account shortfall was $50 million in February 2023. The current account deficit for the eight months of the fiscal year 2023-24 narrowed to $1 billion from $3.8 billion a year ago.

The SBP assessed that the current account deficit is likely to remain closer to the lower bound of 0.5 to 1.5 percent of GDP forecast range for FY24, which will support the foreign reserves position.

The International Monetary Fund reached a staff-level agreement with Pakistan on Wednesday, which, if approved by its board, will release $1.1 billion for the country's flattering economy.

The second review of the loan programme occurred immediately after the formation of the new cabinet. Thus, the review is anticipated to be considered by the IMF’s board in late April. The IMF deal demonstrates the new government's goal of guiding Pakistan from stabilisation to a robust and long-lasting recovery. “Pakistan's economic and financial position has improved in the months since the first review, with growth and confidence continuing to recover on the back of prudent policy management and the resumption of inflows from multilateral and bilateral partners," the IMF said.

Discussions on a medium-term programme are anticipated to begin in the coming months, according to the IMF, which stated that Pakistan has indicated interest in receiving another bailout during the review talks.

Prime Minister Shehbaz Sharif informed his cabinet that the country need a fresh loan from the IMF and that obtaining this arrangement would require raising the tax base. Pakistan's increasing need for external funding and diminishing foreign exchange reserves have made it significantly dependent on IMF support.

The SBP is targeting minimum forex reserves of $9.1 billion by the end of this fiscal year. According to the SBP, Pakistan has paid $13.5 billion of the total $24.3 billion external debt, including interest. Around $10.8 billion remains, of which $2 billion is expected to be rolled over in next few weeks, and another $4.0 billion is in talks. Therefore, about $4.8 billion repayment including $1.3 billion interest still has to be done. The external repayment for FY25 is in the similar range as of FY24 with about $12 billion rollovers.