Forex reserves spike to over 5-month high

SBP’s reserves grow after arrival of funding from multilateral lenders

KARACHI:

Pakistan’s foreign exchange reserves, held by the central bank, have surprisingly increased for the second consecutive week, hitting a five-and-a-half-month high at $8.22 billion, according to data released by the State Bank of Pakistan (SBP) on Thursday.

Foreign currency reserves have cumulatively risen by $1.32 billion in two weeks, which reflects a rebound from almost six-month low of $6.90 billion hit on December 15, 2023.

The reserves grew on the back of official inflows coming from multilateral creditors. This helped the country to meet the International Monetary Fund’s (IMF) end-December quarterly target of net foreign assets (NFA), according to industry sources and local research houses.

In addition, the official inflows improved the country’s capacity to make import payments and foreign debt repayments with no chances of debt default, contrary to the threat of missing necessary payments in the recent past.

The back-to-back multilateral funding at this point in time surprised financial markets globally as well as locally as experts had expected such receipts post-IMF board’s approval of the release of second loan tranche of $700 million. The IMF board is scheduled to meet on January 11. The foreign assistance came from the Asian Infrastructure Investment Bank (AIIB), World Bank and Asian Development Bank (ADB).

The IMF expects Pakistan’s foreign currency reserves to reach $9 billion by the end of June 2024. Its new country report is expected to be released after the board meeting where revised numbers may be provided. Topline Securities CEO Mohammed Sohail said on social media platform X “due to multilateral dollar inflows after the IMF staff approval, Pakistan’s foreign exchange reserves have reached a 23-week high. In just one month, the reserves have increased by $1.2 billion to $8.2 billion in spite of regular debt repayments.”

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It would definitely help meet the IMF’s December quarter NFA target, he added.

The central bank said in its weekly update on Thursday that its foreign exchange reserves rose by $464 million in the week ended on December 29, 2023 to $8.22 billion. On the other hand, the reserves held by commercial banks slipped below the $5 billion mark for the first time in over three months. Total liquid foreign exchange reserves of the country, however, rose to $13.22 billion by December 29, 2023.

Earlier, the ADB inked an agreement to provide financing of $1.2 billion to Pakistan. Similarly, the World Bank approved a loan of $350 million to strengthen food security and improve the education system.

To recall, the SBP’s reserves hit a nine-year low below $3 billion in February 2023, which were barely enough for one month of imports. China came forward for Pakistan’s rescue by extending new financing to help avert the risk of default while other global creditors waited for the IMF to revive its loan programme before unlocking their financing.

In late June 2023, Pakistan eventually got a new lifeline of $3 billion from the IMF. Its first loan tranche of $1.2 billion and fresh deposits from Saudi Arabia and the UAE of $3 billion helped shore up the SBP’s reserves to $8.73 billion in mid-July 2023 from $4.53 billion in the first week of July.

Published in The Express Tribune, January 5^th, 2024.

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