Reserves hit five-year low of $8.41bln in Sept

KARACHI: Pakistan’s official foreign exchange reserves fell five-year low at $8.41 billion in the week ending September 28, only sufficient to pay for less than two months of import bills, building up further pressure on strained balance of payment position.

“SBP’s reserves decreased by $627 million to $8,409 million due to payments on account of external debt servicing,” the central bank said in a statement on Thursday.

The reserves held by the State Bank of Pakistan (SBP) amounted to $9.036 billion in the previous week. The foreign exchange reserves stood at $9.8 billion at the end of last fiscal year.

The official reserves at around current level were recorded in January 2013 when they plunged at $8.694 billion.

The country’s total foreign exchange reserves, including those of banks, fell 4.04 percent to $14.893 billion during the week under review. The reserves of commercial banks stood at $6.484 billion during the week under review compared to $6.485 billion in a week earlier.

Analysts said more than half a billion dollar decline in the foreign exchange reserves is not a good sign for the country’s external account.

“We expect the government has decided to approach to the IMF (International Monetary Fund) to avert the balance of payments difficulties after October 15,” a highly-placed source told The News.

“Finance Ministry has agreed to obtain a new bailout from the IMF. But, the Prime Minister Imran Khan is still reluctant to do so.”

An IMF team on Thursday ended Article IV consultation during a one week stay and it expressed concerns over the deteriorating economic situation. The consultation was related to $6.7 billion three-year extended fund facility program that completed in September 2016. IMF advised the government to expand tax net and raise revenue collection.

The Fund projected external financing gap of $10 to $12 billion for the current fiscal year of 2018/19.

Pakistani authorities, however, estimated external financing requirement to reduce to $8 to $10 billion following remedial measures.

An official said it’s unlikely to entirely depend on the Chinese financial assistance or Saudi-UAE-backed borrowing to plug a hole in the current account deficit.

“The supplementary budget itself suggests the government has decided to go to the IMF,” said economist Ashfaque Hasan Khan, a member of the Economic Advisory Council.

The country’s foreign exchange requirements are sharply rising in the context of growing oil imports and huge external debt repayments.

The current account deficit continues to pose a challenge despite some growth in workers’ remittances and exports in the first two months of FY2019.

A notable increase in the value of oil imports kept the current account deficit at $2.7 billion in July-August compared to $2.5 billion in the corresponding period a year ago.