SBP foreign reserves fall to $8 billion

KARACHI: The central bank’s foreign exchange reserves decreased by $341 million during the week ended September 23, it reported on Thursday.

The reserves held by the State Bank of Pakistan stood at $8 billion. The SBP’s reserves are adequate to cover 1.14 months of imports.

The SBP attributed a fall in the forex reserves to external debt repayments, it said in a statement.

Pakistan’s total foreign reserves declined by $308 million to $13.8 billion. However, the reserves of commercial banks increased by $33 million to $5.8 billion.

Pakistan’s foreign reserves have been depleting fast, despite the revival of the International Monetary Fund loan programme. Higher debt repayments, rising import bill amid increasing global commodity prices and damage from the catastrophic floods put pressure on the forex reserves.

However, analysts said the fall in the rupee was temporary and inflows from the IMF and aid pledges from the international finance institutions in the wake of devastating floods would help improve the forex reserves.

Saad Hashemy, who is an independent economist, said the decline in foreign exchange was momentary as the IMF programme-related flows and aid flows would likely lead to reserve build-up in the coming months. The rupee has started appreciating, despite a decrease in the foreign reserves.

“The recent improvement in PKR is attributable to the return of Ishaq Dar and his subsequent comments on PKR being undervalued; and expectations of stability in economic policies to come. It is further expected that the current finance minister will stay in office and bring about coherent policies for a longer time compared to the recent few finance ministers,” Hashemy added.

“Also global slowdown will lead to lower commodity prices. This will be positive for Pakistan as we are net importers and also our exports are less than 10 percent of country’s GDP,” Hashemy noted.

The expected multilateral and bilateral flows post floods would also likely support the foreign exchange reserves of the country. The World Bank, Asian Development Bank, Asian Infrastructure Bank, and few friendly countries have already committed flood-related aid/funding.

The World Bank would provide $2 billion in aid to Pakistan.

Asian Development Bank (ADB) would approve a $1.5 billion countercyclical loan for Pakistan next month.

Pressures on current account have also started to ease after government restricted imports with August current account deficit clocking in at $703 million versus $1.2 billion in the previous month.