Reserves soar past $11b after two and half years

Weekly update shows increase of $215m in forex deposits

KARACHI:

Pakistan's foreign exchange reserves, held by the State Bank of Pakistan (SBP), surged past $11 billion after a gap of over 30 months, with an increase of $215 million in the week ended October 11, 2024, according to the weekly update released by the central bank on Thursday.

This is the 12th consecutive week of growth in foreign currency deposits, which soared by a total of around $2 billion over three months. Half of the increase came in the wake of arrival of International Monetary Fund's (IMF) first tranche in late September under a new $7 billion loan programme.

The growth helped Pakistani rupee tick up Rs0.05 at Rs277.79 against the US dollar in the inter-bank market on Thursday, ending a three-day losing streak.

The central bank did not give any reason for the fresh surge in reserves. It, however, elaborated to the media recently that it was buying the greenback from local currency markets to repay foreign debt and boost its foreign exchange reserves. With the latest rise, the country's import capacity has expanded to over two months compared to less than one month of import cover in June 2023. Earlier, SBP Governor said forex reserves would soar to $13 billion by the end of current fiscal year in June 2025, adding that the growth was backed by healthy worker remittances and the improvement in export earnings. There is more-than-required supply of foreign currency for imports, indicating a surplus in the market as well as providing room to the central bank to absorb excess supply to replenish its reserves.

In the week ended October 11, the foreign exchange reserves held by commercial banks, however, dropped $150.4 million to $5.08 billion. Accordingly, Pakistan's total reserves rose $64.3 million to $16.11 billion.

Keeping this in view, the Pakistani rupee is projected to remain stable as it has continued to move around current levels for the past six and a half months.

The recent Shanghai Cooperation Organisation (SCO) summit in Pakistan is expected to help bolster trade with China in Chinese renminbi, leading to a decrease in demand for the greenback. A gradual increase in trade with Russia, likely in Chinese currency, will further strengthen the local currency against the US dollar.

Meanwhile, inflows of investments and deposits from overseas Pakistanis through the Roshan Digital Account (RDA) increased $168 million in September to a total of $8.75 billion. Net inflows, however, came in at $1.53 billion since the inception of the scheme four years ago, partly stabilising Pakistan's foreign exchange reserves. Net investments contracted after non-resident Pakistanis withdrew $1.66 billion and spent another $5.55 billion in their homeland.