Forex reserves hit lowest level since mid-March 2021

KARACHI: Country’s foreign currency reserves have hit their lowest level of the current fiscal year, the central bank data showed on Thursday, at a time when the government and IMF talks on 7th review under Extended Fund Facility have dragged on fund’s concerns over a relief package.

Pakistan’s foreign exchange reserves declined by $844 million during the week ended March 18, the State Bank of Pakistan (SBP) said. The country’s foreign reserve assets dropped to $21.439 billion, lowest since mid-March last year, from $22.283 billion a week earlier.

The SBP reserves decreased by $869 million to $14,962.4 billion on external debt and other payments, the bank said. The reserves of commercial banks rose to $6.477 billion from $6.451 billion.

The relief package, which surprised economists, given the global oil prices and the country’s economic conditions, was announced as opposition parties readied a no-confidence motion to push Prime Minister Imran Khan out of office. The subsidy over the next four months will need between Rs250 to Rs300 billion.

Analysts said the ongoing political uproar appeared to offset the conclusion of the ongoing virtual talks to complete the review of $6 billion loan programme and also has negative impact on the country’s economy.

Analyst Yousaf Saeed at brokerage Darson Securities said reserves fell on high current account deficit.

“Some external payments also matured recently including Eurobond and that sharply depleted the reserves,” Saeed said.

A large current account deficit caused by hefty imports given strong domestic demand and spike in global oil and other commodity prices in the aftermath of Russia-Ukraine conflict had already spooked rupee, which lost 13.7 percent since the beginning of this fiscal year, stoking inflation.

The rapid rise in the country's import bill has also put a strain on its foreign exchange reserves.

Pakistan's imports grew over 65 percent year-on-year in the first half of this fiscal year, while exports rose 25 percent. Over the same period, the trade deficit has more than doubled.

Analysts said a depleting foreign exchange pile heightens risks the country may have difficulties meeting its forthcoming overseas debt repayment.

As per the international benchmark forex reserves should be sufficient to cover three months of imports, but at present our reserves probably cover 2.2 months of imports,” said another analyst.

The government in recent years borrowed from the bilateral lenders, global multilateral financial institutions and sold Eurobonds in the international capital markets, which helped the country shore up its reserves, despite facing large foreign debt repayments.