Pakistan’s foreign exchange reserves, held by the State Bank of Pakistan (SBP), hit a 10-month high at $9.15 billion, maintaining moderate growth for the fourth successive week due to the central bank’s strategy of absorbing the surplus supply of the greenback from the system.
In its weekly update on Thursday, the central bank reported that reserves increased by $22 million in the week ended May 17, 2024, rising cumulatively by $1.17 billion in the past four weeks.
The persistent increase in reserves has improved import cover to 1.73 months. However, this remains lower than the minimum three-month import cover recommended for countries like Pakistan.
Reserves recorded a notable surge in the first week of May 2024 after the country received $1.1 billion as the last tranche from the International Monetary Fund (IMF) under its $3 billion loan programme.
Additionally, the central bank’s strategy to buy the surplus supply of the greenback from domestic currency markets, including inter-bank and open markets, also supported the growth in reserves.
The supply of the greenback has remained higher than demand due to improvements in workers’ remittances and stable export earnings. Remittances hit a two-year high at $3 billion in March and recorded the second highest inflow of the current fiscal year at $2.8 billion in April, coinciding with Ramazan and Eid festivals.
The bank has so far bought around $6 billion in the current fiscal year, helping the nation repay maturing foreign debt on time.
The IMF had anticipated foreign currency reserves would rise to $9.10 billion by the end of June 2024. The reserves surpassed this predicted level almost two months before the Fund’s assumed timeline.
Disagreeing with the IMF assumption, Pakistan’s high officials, including Finance Minister Muhammad Aurangzeb and SBP Governor Jameel Ahmad, anticipated that reserves would grow to around $10 billion by the end of the current fiscal year on June 30, 2024. Ahmad noted that reserves had increased from less than $4 billion before the coalition government secured the $3 billion Stand-by Arrangement (SBA) in late June 2023.
Read Forex reserves hit 6-month high at $8.27b
Surprisingly, they remained stable at over $8 billion in mid-April despite the government repaying $1 billion days before the maturity of a foreign debt. The successful repayment of a maturing Eurobond a couple of days early helped boost foreign investors’ confidence in the domestic economy. As a result, they bought Pakistan’s Eurobonds maturing in 2025 and 2026 at a higher price.
The improvement in foreign exchange reserves and the return of stability in the rupee-dollar parity over the past few months have helped achieve a current account surplus for the past four successive months (Jan-Apr) of FY24.
The central bank reported that foreign exchange reserves held by commercial banks ticked down $62.5 million, settling at $5.43 billion in the week ended May 17, 2024.
Accordingly, the country’s total reserves (held by SBP and commercial banks) decreased by $41 million, closing at $14.58 billion in the week under review.
Gold drops
Gold slumped significantly by 2.50% or Rs6,200 per tola in a day, settling at over a one-week low of Rs242,000 in Pakistan in line with the global trend.
The precious metal dropped almost 2.50% or $60 per ounce, reducing to $2,355 in the international market, according to the All Pakistan Sarafa Gems and Jewellers Association.
The bullion price came under pressure after the US Federal Open Market Committee (FOMC) published minutes of their meeting, suggesting the US central bank’s reluctance to cut interest rates anytime soon.
The bullion pricing body reported that the latest gold price is under cost by Rs4,000 per tola. It has determined the price considering that consumer purchasing power has significantly decreased due to the recent spike in commodity prices globally.
Published in The Express Tribune, May 24th, 2024.
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