SBP reserves fall to $7.81 billion

KARACHI: The central bank’s foreign exchange reserves dropped by $87 million to $7.81 billion in the week ended August 19, it reported on Thursday, highlighting the pressure that the lack of external financing has put on the economy.

Pakistan’s total liquid foreign reserves fell by $92 million to $13.52 billion, whereas the reserves of commercial banks slightly decreased by $4 million to $5.71 billion.

The State Bank of Pakistan (SBP) reserves would cover 1.11 months of imports.

The country’s foreign reserves have been dwindling on the back of dried foreign currency inflows and a widening of the current account deficit.

However, the revival of the International Monetary Fund (IMF) bailout package and the expected contraction in the current account deficit would help shore up foreign reserves and strengthen the local currency.

Pakistan has obtained $4 billion in additional financing from friendly countries such as Qatar, Saudi Arabia, and the United Arab Emirates.

A resumption of the IMF programme was also anticipated as the IMF board meeting for the approval of the next tranche has been scheduled for August 29.

Pakistan is set to receive $3 billion from the Qatar Investment Authority, one of the biggest sovereign funds in the world. The action will boost the struggling economy of the South Asian country.

As further evidence of the Kingdom’s commitment to assisting Pakistan's economy, Saudi Arabia has also announced plans to contribute $1 billion, according to the Saudi Press Agency on Thursday.

The SBP in its latest monetary policy statement said that the foreign reserves would likely reach $16 billion by FY2023. The additional funding that Pakistan would have access to this fiscal year, would be the driving force behind this. This would also depend on Pakistan adhering to important IMF-agreed-upon steps, as well as continuing its programme.

For FY23, Pakistan's gross finance requirements—which take into account the current account deficit and debt repayments—would be roughly $30 billion, while available financing against this was estimated at $37 billion.

The country’s current account deficit narrowed 45 percent to $1.2 billion in July from $2.2 billion in the previous month due to lower imports.

The SBP expects a current account deficit to be around 3 percent of gross domestic product or $10 billion in FY2023, compared with 4 percent or $17 billion a year ago.