KARACHI: Foreign exchange reserves of the State Bank of Pakistan (SBP) increased by $105 million to reach $8 billion again.

The SBP’s report on Thursday indicated that the reserves of both commercial banks and the SBP increased during the week ending March 15, showing the presence of excess dollar liquidity in the banking market, which also supports exchange rate stability.

The demand for dollars is not high, reflecting the prevailing restrictions on imports. This situation also presents an opportunity for the SBP, which is a permanent buyer of dollars from the banking market. Exchange companies said they sold $3b to the banking market in the first seven months of the current fiscal year, FY24. In addition to that, they sold about $250 million in February of this year in the same market.

According to the latest data, the country noted a total increase of $239m to $13.39bn during a week. The reserves of the SBP increased by $105m to $8.017bn. This was apparently achieved through buying dollars from the interbank market. Commercial banks’ reserves increased by $134m to $5.37bn.

The SBP succeeded in bringing the total close to the IMF target of $9bn by the end of FY24. With the possible release of the final $1.1bn tranche from the $3bn standby arrangement, the SBP would reach the target.

Fears rise over Pakistan’s capacity to service debts

However, bankers and analysts said the country will have to pay $1bn against the maturity of the Euro bonds in April. This outflow would slash the SBP’s reserves and could disturb stability in the exchange rate.

Experts said that despite many odds, the country kept servicing its external debt during the current financial year. But this good payment track did make the country eligible to launch Euro bonds to raise dollars from the international market.

Some analysts believe that the new agreement with the IMF could help Pakistan to re-enter the international bonds market. The country is willing to avail another loan of $6bn to $8bn from the IMF.

Other sources for dollar inflows have shrunk for Pakistan. The Arab countries are willing to invest or purchase lucrative units or spots in Pakistan, but their investment is too low.

During the last eight months of this fiscal year, only $39m investment was noted from four rich Gulf countries, reflecting their reluctant approach to investing in Pakistan.

Many experts believe that the debt trap has finally succeeded in having a strong grip over the economy, and there is no way out for the policymakers except to borrow more. Doubts and fears are still high in the financial market over the country’s capacity to service the external debts of $25bn required in FY25.

Published in Dawn, March 22nd, 2024