Foreign currency reserves rise to 4-week high

Add $369m in past two weeks, reach $3.26 billion

KARACHI:

Pakistan’s foreign exchange reserves are expected to have bottomed out at a nine-year low below $3 billion a couple of weeks ago. They have continued to improve for the second consecutive week, rising by $66 million to a four-week high at $3.26 billion.

The foreign exchange reserves have cumulatively increased by almost $369 million in the past two weeks to $3.26 billion on February 17, 2023, compared to a nine-year low of $2.92 billion on February 3, 2023, according to the latest weekly update released by the State Bank of Pakistan (SBP) on Thursday.

Talking to The Express Tribune, Pak-Kuwait Investment Company Head of Research Samiullah Tariq said, “The foreign exchange reserves have bottomed out.”

Recalling that Finance Minister Ishaq Dar has said the country would receive $700 million from China this week, he said that “the reserves are expected to gradually rise from here onwards”.

Ismail Iqbal Securities Head of Research Fahad Rauf said further improvement in the foreign currency reserves was still dependent on the revival of International Monetary Fund (IMF) loan programme and flow of funds from the Fund, other multilateral and bilateral creditors including China, Saudi Arabia and the United Arab Emirates. “They (FX reserves) are projected to increase to around $7-8 billion (in four and a half months) by the end of current fiscal year on June 30, 2023.”

The reserves have continued to improve after the central bank opted to buy US dollars from the inter-bank market in the wake of surge in the supply of greenback.

“Surplus supply of US dollars in the inter-bank market has prompted the central bank to intervene (buy the surplus),” a source said.

According to experts, improvement in the reserves came apparently after the government made no major payment including foreign debt repayment in two weeks. The good news was that “the government’s foreign income – through export earnings and workers’ remittances – has grown higher than its import payments”, Rauf said.

“Pakistan incurred a trade deficit of $1.7 billion, which was fully financed through workers’ remittances at $1.9 billion in January 2023.”

Inflows have remained on an uptrend since the government ended its control of rupee-dollar exchange rate and allowed market forces (mostly commercial banks) to determine the rate.

Accordingly, the currency dived 16.5% in 10 days to an all-time low at Rs276.58/$ on February 3, 2023, black market collapsed and exporters and overseas Pakistanis received export earnings and dispatched remittances through official channels, respectively.

Remittances are anticipated to improve (to $2.3 billion to $2.4 billion) in February and onwards considering the availability of improved exchange rate in the inter-bank market. Besides, overseas Pakistanis usually send high remittances in the fasting month of Ramazan.

Earlier, a better exchange rate in the black market encouraged some traders and non-resident Pakistanis to receive and send funds through the illegal Hawala-Hundi operators.

Exchange Companies Association of Pakistan (ECAP) Secretary General Zafar Paracha, however, said the black currency market was once again gaining strength on conflicting reports of possible delay in the resumption of IMF loan programme of $6.5 billion.

He said the black market was offering a comparatively higher exchange rate in the range of Rs285-295/$ in Pakistan and Afghanistan compared to the ones in inter-bank and open markets.

Earlier, the black market was offering the exchange rate of Rs250-270/$, it was learnt. However, Pakistani currency maintained its uptrend for the second consecutive working day, as it further improved by 0.37% or Rs0.97 to Rs260.93 against the greenback in the inter-bank market on Thursday.

Published in The Express Tribune, February 24^th, 2023.

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