Forex reserves hit three-year high of $17.491 billion

KARACHI: Pakistan’s foreign exchange reserves reached a three-year high of $17.491 billion in the week ended April 17, following inflows of more than $600 from the privatisation of HBL Pakistan.
The foreign exchange reserves rose by $673 million to $17.491 billion from $16.818 billion a week earlier, the central bank said on Thursday.
Reserves held by the State Bank of Pakistan (SBP) rose to $12.364 billion from $11.758 billion a week ago and those held by commercial banks edged up to $5.127 billion from $5.059billion.
During the week, the country received inflows of $605 million on account of privatisation proceeds of HBL Bank, which pushed the reserves to three-year high. The reserves hit an all-time high of $18.243 billion in June 2011.
The historic deal on divestment of government’s 41.5 percent stakes in HBL, the largest transaction in the Asia Frontier Markets, fetched $1.06 billion, including foreign exchange of $764 million and Rs24.567 billion in Pakistani rupees. Analysts said the rise in the forex reserves, sufficient to cover three to four months of imports, is widely in line with their expectations.
The said privatisation proceeds, the International Monetary Fund (IMF) loans and a record inflow of remittances have helped the forex reserves grow steadily.
Remittances from overseas Pakistanis topped $13.32 billion during July to March, an increase of 15 percent compared with the same period last year.
The country, earlier this month, also received $499.049 million from the IMF as the sixth loan tranche under its Extended Fund Facility. After receiving the sixth tranche, total disbursements from the Fund stood at $3.5 billion.
Analysts said the country’s foreign exchange reserves hit three-year high yet the sustainability of those reserves is a cause of concern in the medium-term. Realistically out of the reserves nearly $3.5 billion is the amount the country have borrowed from the IMF and then there are other foreign loans, so around 30 percent of the reserves are on loans, they added.
One analyst said the more worrying factor is that repayments to the major foreign loans have started and that would put pressure on the foreign exchange reserves.
Pakistan is a heavily indebted country, with its external debt amounting to Rs6.463 trillion and domestic debt Rs18.99 trillion. Its debt-to-GDP ratio is around 65.3 percent of GDP as of December 31, 2014, breaching the limits of fiscal responsibility.
The country paid $1.535 billion as debt servicing to the external creditors during October to December of the fiscal year 2014/15, including $1.014 billion as principal amount and $325 million in interest.
During the week, the central bank made payments of $270 million on account of external debt servicing and other official payments.
Rating agency Moody’s, in its latest report, said the cushion from reserves, coupled with dwindling external debt repayments, will further diminish the sovereign’s likelihood of the country’s default.
“The steady increase in foreign reserves, although largely derived from higher external borrowing, has markedly improved Pakistan’s score on Moody’s External Vulnerability Indicator (EVI), which measures the adequacy of reserves relative to maturing debt in the next year,” the rating service said.
“Signaling confidence in its ability to sustain the pace of reserve accretion, the government agreed to raise by $1 billion the target for net international reserves (a performance criterion under the International Monetary Fund program) to $6.8 billion by late June.”