SBP forex reserves deplete by $1.7 bn

ISLAMABAD: The foreign currency reserves held by State Bank of Pakistan (SBP) depleted by $1.7 billion just in one week period, indicating vulnerabilities at external account of the economy.

The policy of luring hot money also bounced back as sharp spikes in global risk aversion and the flight of capital to safe assets have led to portfolio outflows of $2.9 billion during July-March period of the current fiscal and alone March 2020 witnessed outflow of around $2 billion.

At a time when all multilateral creditors such as the IMF, World Bank (WB) and Asian Development Bank (ADB) came forward to rescue Pakistan’s economy in the aftermath of COVID-19 pandemic through extending support of a few billion dollars, the foreign currency reserves held by the SBP nosedived by $1.7 billion on week ending on May 29, 2020.

The IMF approved and disbursed $1.4 billion under Rapid Financing Instrument (RFI) after COVID-19 pandemic and the World Bank as well as ADB also moved ahead with approving loans but that all did not stop depletion of foreign currency reserves at rapid pace.

One top economist of the country pointed out that the external vulnerabilities were not yet over despite sharp decrease in oil import bill. He said that the government would have to reply upon major policy initiatives in the wake of possibility of reduction in exports and attracting much needed remittances from Pakistanis living abroad. He said that the non-debt creating inflows were necessary for Pakistan. He said that more external loan repayments were on the cards so the government and SBP will have to focus to build up buffer for raising foreign currency reserves.

According to the SBP, the total liquid foreign reserves held by the country stood at $16.920 billion on May 29, 2020. The break-up of the foreign reserves position shows that foreign reserves held by the State Bank of Pakistan stood at $10.362 billion and net foreign reserves held by commercial banks were $6.558 billion. The total liquid foreign reserves stood at $16.92 billion.

“During the week ended on May 29, 2020, SBP reserves decreased by $1.712 billion to $10.362 billion. This decline is primarily attributed to government external debt repayments of $1.669 billion,” the statement added.