KARACHI: The foreign exchange reserves of the State Bank of Pakistan (SBP), which have been declining fast since August, took the biggest drop of $691 million to $16.254 billion during the week ended on Nov 19.

The central bank on Thursday reported what was the current fiscal year’s lowest level mainly due to external debt repayments.

The country’s external account has been under dual pressure of debt repayments and rising current account deficit.

However, analysts said the situation could improve in the coming weeks or months as the negotiations for release of $1bn tranche with the IMF had been concluded successfully.

Fawad says $3bn Saudi deposit to land this week

The IMF in a statement on Nov 21 said the Pakistani authorities and IMF staff have reached a staff-level agreement on policies and reforms needed to complete the 6th review. The agreement is subject to approval by the Executive Board, following the implementation of prior actions, notably on fiscal and institutional reforms.

Completion of the review would make available $1.059bn, bringing total disbursements to Pakistan under the Extended Fund Facility to about $3.027bn and helping unlock significant funding from bilateral and multilateral partners.

“The inflow of IMF’s over $1bn would help the SBP to improve its foreign exchange reserves which would ultimately strengthen the exchange rate regime,” said Samiullah Tariq, head of research at Pak-Kuwait Investment Company.

Pakistan is also waiting placement of $3bn in the account of SBP promised by Saudi Arabia. With the go-ahead of the IMF, Pakistan could receive the promised deposit.

Information Minister Ch Fawad Hussain on Thursday tweeted that all the legal formalities for transferring of $3bn by Saudi Arabia have been completed and Pakistan will get the promised amount this week.

“The IMF clearance will also enable Pakistan to launch sukuk (Islamic bonds),” said Mr Tariq. The country is planning to raise up to $1.5bn through sukuk from the international market.

Since August this year, the State Bank has lost about $3.82bn mainly because of debt repayments. The foreign exchange reserves of the State Bank in August were $20.074bn, which fell to $16.254bn on Nov 19.

The falling SBP reserves have hit the rupee-dollar exchange parity. The US dollar is trading at much higher rates compared to the previous fiscal year mainly due to surging imports. The central bank in its annual report for FY21, released on Wednesday, estimated that total imports may touch $63.5bn by June 30, 2022, which will surely widen the current account deficit (CAD).

However, the SBP still believes the CAD would be 2-3 per cent of GDP while it has has already exceeded to 4.7pc in 4MFY22.

The country’s overall foreign exchange reserves fell by $777m to $22.77bn during the week. Also the forex holdings of the commercial banks also declined by $86m to $6.519bn.

Published in Dawn, November 26th, 2021