SBP’s foreign currency reserves fall to $7.7 billion

KARACHI: The central bank’s foreign exchange reserves fell by $118 million to $1.4 percent during the week ended August 26, it said on Thursday.

The reserves held by the State Bank of Pakistan stood at $7.7 billion—enough to cover little more than a month of imports.

Pakistan’s total foreign reserves declined 0.9 percent to $13.4 billion, while the reserves of commercial banks inched down by 0.1 percent to $5.7 billion.

The foreign currency reserves are set to rise after the country has received loan disbursement from the International Monetary Fund under its bailout package.

“SBP has received proceeds of USD 1.16 billion (the equivalent of SDR 894 million) from IMF under the Extended Fund Facility (EFF) on 31 August 2022 which would be included in SBP’s FX reserve position for the week ending on 02 September 2022,” the SBP said in a statement.

The fresh disbursement comes after the Washington-based lender revived a bailout package for the cash-strapped country.

The IMF’s inflows will also help stabilise the local currency.

The IMF board approved the loan programme on Monday, saving Pakistan from possible default on its foreign debt repayments.

The IMF’s board has approved an extension of the EFF till June 2023 instead of September 2022 to support programme implementation and meet the higher financing needs this fiscal year as well as unlock additional financing The board also approved the augmentation of access by SDR 720 million ($1bn) bringing total access to $6.5 billion.

By FY2023, foreign reserves, which the SBP in its latest monetary policy statement see, are probably going to reach $16 billion.

The additional funding that Pakistan will have access to this fiscal year will be the driving force behind this. This would also depend on Pakistan adhering to important IMF-agreed-upon steps and 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 is 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.