October FX reserves fall below $8bln for first time in nearly 5yrs

Karachi: Pakistan’s official foreign exchange reserves sharply fell 3.3 percent to $7.825 billion, leaving the country with an alarmingly low level of dollars to pay for less than two months of import bill and debt servicing, although analysts bet on the latest Saudi rescue that would likely to stave off a brewing balance of payment crisis.

The reserves held by the State Bank of Pakistan (SBP) declined $264 million in the week ended on October 19 from $8.088 billion in the previous week.

“SBP’s reserves decreased by $264 million to $7,825 million, due to external debt servicing and other official payments,” the central bank said in a statement on Thursday.

The reserves of commercial banks also decreased to $6.470 billion from $6.525 billion in a week earlier. The country’s total liquid foreign exchange reserves stood at $14.295 billion compared to $14.613 a week earlier.

Analysts said the Saudi financial support, potential Chinese inflows and a possible International Monetary Fund’s (IMF) bailout are likely to bolster the country’s dwindling foreign currency reserves.

Saudi government pledged three billion dollars for balance of payment support and another three billion dollars a year on account of oil import deferred payment for three years.

Analyst Mirat Hyder at Taurus Securities said the real economic effects of Saudi financing decision “cannot be gauged until details regarding disbursements are made public”.

“We can safely assume that October’s import numbers will largely be unaffected by this news,” Hyder said. “We can expect oil imports from the UAE, Kuwait, Singapore to be substituted with KSA’s (Kingdom of Saudi Arab) product and this (oil payment) deferment will slow down the deterioration of the SBP’s forex reserves, while $3 billion in cash injection will cover our imports for three months.”

Saudi supplies three billion dollars of oil in a year to Pakistan whose annual oil import bill accounts for nearly quarter of the country’s total imports of over $60 billion.

Prime Minister Imran Khan has also mounted efforts to nail down Saudi-style financing from China and the other Pakistan’s friendly countries.

The country lined up potential financial help from the IMF that, according to the finance ministry, would be on less strict terms given the recent financial support from Saudi Arab.

Though the current account deficit fell 2.5 percent to $3.665 billion in the first quarter of the current fiscal year, the government is facing $8 billion external debt repayments till December.

The SBP said the country’s foreign exchange reserves started to deplete after a month of completion of IMF’s extended fund facility arrangement in September 2016.

“Even the issuance of Eurobond and Sukuk in December 2017 was unable to arrest the downward trajectory in reserves, as the country’s import payments outpaced FX (forex) receipts from exports, workers’ remittances and FDI (foreign direct investment),” it said in a latest report.

The SBP also let the rupee depreciate by more than 25 percent against the US dollar since the last yearned to tame the rising current account deficit that shot up to 18 billion last fiscal year.

“Although the recent market-driven adjustment in PKR-USD exchange rate bodes well for Pakistan’s export competitiveness, the persistent depletion in foreign exchange reserves poses a serious challenge for the country’s balance of payment position in case of any external shock,” it added.

The central bank advocates rupee devaluation that it says helped in easing pressure on the balance of payment position.

A series of rupee depreciation in the recent past led to a 1.6 percent reduction in trade deficit and 2.6 percent cut in current account deficit during the first quarter of

the current fiscal year of 2018/19, it told a senate body.