KARACHI: Pakistan on Tuesday received $2.75 billion from the International Monetary Fund (IMF) under its new Special Drawing Rights allocation to back economically vulnerable countries combating the coronavirus pandemic, the central bank said.
The latest disbursement from is expected to increase the State Bank of Pakistan’s foreign exchange reserves to an all-time high of $20.4 billion, while the country’s total forex reserves reach a record high of $27.41 billion.
Pakistan’s forex reserves stood at $24.66 billion and those of the SBP were at $17.62 billion in the week ended August 13.
These inflows come amidst a deadlock in talks between Pakistan and the IMF on the sixth review of its $6 billion bailout package due to differences between the two sides over increase in energy prices, and fiscal and revenue reforms.
Analysts said the wider trade gap due to higher imports has intensified concerns about the current account balance. The current account deficit is expected to rise to $7.5-8 billion this fiscal year from $1.8 billion a year ago.
However, the received inflows will provide comfort to the forex reserves, taking import cover to around 3.5 months, and reduce any concerns over the near-term balance of payments crisis and the immediate need of the IMF programme.
The SBP in its last monetary policy said that the country’s forex reserve position was expected to continue to improve this year due to the adequate availability of external financing. Gross external financing requirement is estimated at $21 billion, where available financing is estimated at $24 billion.
The estimated gross external financing need takes into account the continuation of the IMF programme.
“We highlight that roughly 50 percent of this external financing, showed by the SBP, is through official creditors (non-IMF), who look towards the IMF for comfort,” said an analyst at Topline Securities in its latest report.
Analysts and the markets were expecting the fund received from the Washington-based global lender would help ease the pressure on the rupee. However, the domestic currency continued trading on the back foot amid higher import payments.
The IMF distributed about $650 billion in new SDR to its member countries on Monday to support the countries through the pandemic. This is the largest distribution of the monetary reserves of the IMF in its history. This funding would facilitate the recovery efforts of developing economies.
IMF’s Managing Director Kristalina Georgieva said the Fund’s reserves distribution would provide additional liquidity for the global economy, improving member countries’ foreign exchange reserves and reducing their dependence on more expensive domestic or external debt.
The major benefit of the SDR allocation is to improve the forex reserves. For countries with low reserves, SDR gives a great means to pump in liquidity.
Pakistan received $1.4 billion from the IMF under its Rapid Financing Instruments in April 2020. This disbursement was made by the Fund in the wake of the coronavirus outbreak.
