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Business

February 17, 2017

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Forex reserves fall to $21.824bln, lowest in 9 months

Forex reserves fall to $21.824bln, lowest in 9 months

Debt payments bite foreign currency

KARACHI: Foreign exchange reserves fell a nine-month low level of $21.824 billion during the week ended 10 February as the government used forex for external debt payments, the central bank said on Thursday.

The country’s foreign reserves amounted to $21.601 billion or close to the current level in May 2016. The State Bank of Pakistan’s (SBP) reserves fell $224 million to $16.993 billion in the week under review.

“During the week ending 10 February, 2017, SBP’s reserves decreased by $224 million to $16,993 million on account of GOP (government of Pakistan) debt and other payments,” the bank said in a statement. 

Last month, the government already repaid debt worth $500 million to China and $290 million to other lenders. The country’s reserves reached an all-time high of $24 billion and the SBP’s reserves at record high of $19 billion in October this year.

Experts said the fall in reserves depicts pressure on the balance of payment position.  “Reserves declined $2 billion during November to January… it’s happened for the first time since the incumbent PML-N (Pakistan Muslim League (Nawaz) government took office,” an economist said. “Reserves would have been fallen to $4 billion during the last three months, if the government didn’t borrow loans from foreign lenders.”

Another economist said the decline in foreign currency reserves shows an underlying weakness in balance of payments as exports are falling, imports rising and workers’ remittances and foreign direct investment at below-expected levels.

The current account was in deficit for the first half of the current fiscal year. It rose to $3.585 billion in July-December 2016/17 from $1.865 billion a year earlier.   Experts said foreign exchange reserves started declining since the country exited from the International Monetary Fund’s loan program in September 2016.

They said the government built high reserves on borrowing from international lenders. “Reserves had been built largely on a financial account surplus dominated by debt inflows,” Standard Chartered Bank said in its recent report. “A widening current account deficit may make it harder to sustain this build-up… we expect the focus on FX borrowing to continue; a less supportive external environment may make this more difficult.”

Experts said the government is likely to obtain a fresh loan of $600 million from China to shore up its falling foreign currency reserves.   The rupee is stable despite looming pressure on forex reserves.    

The policymakers maintained the rupee-dollar parity at around 104.8 since last year on the back of high reserves level.   “Fundamentally speaking, the rupee should be devalued to at least its fair value of 110,” said Eman Khan at Tresmark Research. “For forex, the persistent rise in current account deficit and stubborn exports are a source of major concern.” 

Khan said while the dollar in the open market is still on the high side, “it looks unlikely that there will be any change in the interbank market rates.”

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