SBP’s forex reserves decline to $7.457 billion

KARACHI: The central bank’s foreign exchange reserves fell to nearly one-month low level of $7.457 billion during the week ended December 21, pressured by increased foreign debt repayments, the State Bank of Pakistan (SBP) said on Thursday.

The SBP’s foreign reserves amounted to $7.502 billion or close to the current level in November 2018.

“During the week ended December 21, 2018, SBP’s reserves decreased by $591 million to $7,457.3 million, due to external debt servicing and other official payments,” the SBP said in a statement.

Total liquid foreign reserves held by the country dropped to $14.017 billion from $14.584 billion in the previous week.

The reserves held by commercial banks stood at $6.560 billion, compared with $6.536 billion in the preceding week, the SBP said.

Rising external debt repayments continued to bite foreign currency.

The International Monetary Fund is concerned about the debt payment capacity of Pakistan, saying it will assess the debt sustainability profile of the country before sanctioning new loans.

Rating agency Fitch downgraded Pakistan’s long-term foreign currency issuer default rating to ‘B-’ from ‘B’ on heighted external financing risk, and increased foreign debt payments.

The falling foreign currency reserves are also putting pressure on the exchange rate. The local currency has weakened almost 29 percent since December 2017.

Pakistan’s current account deficit for the first five months of the 2018/19 fiscal year narrowed 10.6 percent to $6.090 billion from $6.182 billion a year ago.

A UK-based advisory service, Economist Intelligent Unit (EIU), in its latest report stated that the country was facing an impending balance of payments crisis, with foreign reserves not even enough to cover two months worth of imports.

The EIU expects the current account deficit equivalent to 3.7 percent of gross domestic product in 2019/23, compared with the estimated average of 5.4 percent in 2017/18.

The SBP expects the projected decrease in the current account deficit could be supported by the recent decline in international oil prices and bilateral inflows, which would encourage confidence in the foreign exchange market. These developments would help reduce pressures on SBP’s net liquid foreign exchange reserves.

The country received the second $1 billion tranche of a $3 billion Saudi bailout last week. The central bank’s forex reserves are expected to increase to $8.2 billion following latest inflows from Saudi Arabia.

The United Arab Emirates has also announced its intention to deposit $3 billion in the SBP to support the financial and monetary policy of Pakistan.

The government is currently negotiating a bailout programme with the IMF to ease pressure on the balance of payments. The government held talks with the IMF last months, which remained inconclusive amid the fund’s tough demands for securing the new programme.