SBP forex reserves fall below $8 billion on debt payment

KARACHI: The foreign exchange reserves held by the central bank dropped by $74 million to $7.981 billion in the week ending April 19 because of external debt repayments, the State Bank of Pakistan said on Thursday.

The country’s foreign reserves fell by $93 million to $13.281 billion. The reserves of commercial banks also decreased by $20 million to $5.299 billion.Analysts and participants in the financial markets were awaiting last week’s FX data to assess how the SBP manages the reserve building and debt repayment.

Surprisingly for analysts and investors alike, the foreign exchange reserves were stable at $8 billion on April 12th, even after $1 billion in dollar bonds were repaid. Therefore, they assumed that since remittance inflows had improved and outflows had reduced over the previous few weeks, the SBP had bought dollars from the market.

The country has been able to build up its foreign reserves in recent times, and by the end of June, the reserves are expected to reach $9–10 billion or almost two months' worth of import cover.

Pakistan has to repay $24 billion in external debt in the next fiscal year.The country posted in March its highest current account surplus since February 2015. In March, the surplus reached $619 million—its second positive reading in a row and the third-largest monthly figure (surplus) on record.

The current account deficit narrowed by 87 percent to $508 million in the nine months (July-March) of the fiscal year 2024.In meetings with foreign investors last week on the sidelines of the IMF-World Bank Spring meetings in Washington, the SBP's governor, Jameel Ahmad, stated that the country's external sector has stabilised, as evidenced by the significant decline in the current account deficit.

The SBP managed to more than double its foreign reserves from January 2023 ($3.1 billion) to $8 billion on April 12, 2024, thanks to improvements in the external account, Ahmad said.The SBP’s forward liabilities have also reduced significantly from $5.7 billion in January 2023 to $3.4 billion in February 2024, he added.

The governor stressed the improvement in the country’s external debt dynamics, with a reduction in the gross financing requirements due to sizable current account contraction. Moreover, the maturity profile of external debt has also improved, with the share of relatively costly short-term commercial loans declining while the share of long-term concessional financing from multilateral agencies, coupled with support from bilateral partners, is rising.

The executive board of the International Monetary Fund is scheduled to meet on April 29 to discuss the approval of the final $1.1 billion tranche of the $3 billion stand-by arrangement. This month marks the end of this loan facility.The country is seeking a new long-term, larger IMF loan programme. It is expected to secure the bailout by early July.