KARACHI: The State Bank of Pakistan's (SBP) foreign currency reserves have dropped to levels worth just 4 weeks of imports, central bank figures showed on Thursday.
The central bank’s foreign exchange reserves declined by $303 million to $7.6 billion in the week that ended October 7 due to foreign debt repayments.
Pakistan’s total foreign reserves fell by $342 million to $13.2 billion. The reserves of commercial banks also decreased by $40 million to $5.6 billion. “This decrease was entirely attributed to external debt repayments, which included repayment of a commercial loan and interest payment on Eurobonds,” the SBP said in a statement.
The country's foreign reserves have been depleting fast, despite the resumption of the International Monetary Fund (IMF) loan programme. Higher debt payments, lack of external financing, lower remittances, and damage from the catastrophic floods put pressure on the forex reserves.
Analysts says the fall of foreign currency reserves is a potential threat for debt payments and to imports of basic food and energy imports. They added that flood relief funds from the multilateral creditors as well as financing from GCC are required to ease pressure on the reserves. Pakistan also needs to stop its reserves from bleeding.
Last week, Moody's cut Pakistan's credit rating from B3 to Caa1, which is considered "junk" territory, citing external risks and doubts about Pakistan's capacity to obtain the necessary finance to satisfy its demands in the coming years.
However, the central bank said Pakistan made $4 billion of its debt repayments, and in the first ten days of October, another $600 million was paid. "As a result of Pakistan meeting all its obligations, there should be no doubt about fulfilling any upcoming debts," the central bank told analysts at post monetary policy briefing on Monday. The SBP expects, with the secured external financing and additional commitments from international financial institutions in the wake of floods, the reserves of the country will improve. Pakistan is also hopeful of receiving $4 billion committed by World Bank, Asian Development Bank and the United Nations for flood relief operations.
Out of total $4 billion pledges, 1.5 billion will come from the Asian Development Bank, 0.5 billion from the Asian Infrastructure Investment Bank, $1 billion from the World Bank, and $1 billion is anticipated from the United Nations.
The World Bank's pledge is contingent on the fulfilment of a few requirements. The ADB board will meet on October 25 to approve a $1.5 billion payment to Pakistan.
Pakistan will not request debt restructuring from Paris Club creditors, according to finance minister Ishaq Dar. However, analysts and the market expect the $23 billion worth Chinese loans would be restructured over the course of a year.
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