Foreign exchange: Reserves hit 12-year low, SBP data reveals

Published: November 28, 2013
The alarming decrease in foreign exchange reserves is indicative of Pakistan’s widening current account deficit, which increased to $1.3 billion in the first four months of fiscal 2014 (July-October).

The alarming decrease in foreign exchange reserves is indicative of Pakistan’s widening current account deficit, which increased to $1.3 billion in the first four months of fiscal 2014 (July-October).


Foreign exchange reserves held by the State Bank of Pakistan (SBP) decreased to $3.4 billion, hitting its lowest level since November 2001 when they had been less than $3.5 billion, according to data released yesterday.

Total liquid foreign reserves held by Pakistan on November 22 amounted to $8.7 billion, the SBP data revealed. Out of the total liquid reserves, net foreign exchange reserves held by banks other than the SBP amounted to $5.3 billion.

Speaking to The Express Tribune, economist Sayem Ali said the sharp decline in foreign exchange reserves was due to the hefty oil import payments and external debt repayments, despite the country registering record remittances and a strong growth in exports.

“Aggressive monetary tightening, higher import duties and cash margins on imports would have eased the pressure on foreign exchange reserves,” said Ali. “However, the government has so far not shown any urgency to arrest the decline in reserves.”

The alarming decrease in foreign exchange reserves is indicative of Pakistan’s widening current account deficit, which increased to $1.3 billion in the first four months of fiscal 2014 (July-October), a stark comparison to the surplus of $14 million in the corresponding period last fiscal year.

As a consequence, Ali said, the Pakistan rupee is witnessing a sharp depreciation. The rupee traded at Rs108.55 a dollar on Thursday, which translates to a depreciation of 10.2% since June when one dollar was worth Rs98.50.

“The IMF agreement was expected to avert a balance of payment crisis. But unfortunately, the upfront disbursement was only $550 million as opposed to nearly $3 billion upfront disbursement in the case of the 2008 loan. Hence, foreign exchange reserves have continued to decline despite the IMF loan agreement,” he added.

Pakistan has still not received the second tranche of the current IMF loan, which will be equal to $544 million.

Notably, the SBP-held foreign exchange reserves, which cover less than one month of imports, do not include the $396 million repayment that the country made under the IMF/SBA facility on November 26. Ali estimated that the SBP reserves would decrease to $3 billion by the end of November.

“This is a critical level and, unless the trend is reversed, the rupee will continue to devalue and the cost of borrowing – such as LCs on imports, Eurobond, trade finance – will keep rising, thus hurting businesses.”

Meanwhile, according to Global Securities analyst Umair Naseer, the least the government can do now is to speed up the process of the 3G auction licence and the privatisation of public-sector enterprises to realise inflows of foreign exchange.

“There appears to be no short-term solutions to the problem,” said Naseer, adding that other major sources of foreign exchange reserves include foreign direct investment, exports and remittances, which require macroeconomic stability and implementation of long-term policy initiatives.

He said relations with the United States will also play an important role in determining the level of foreign exchange reserves in the coming months, as Pakistan can receive Coalition Support Fund payments of roughly $1 billion in the current fiscal year.

“I believe short-term reserves will remain under pressure, but the situation may improve in the fourth quarter (April-June) of fiscal year 2014,” Naseer added.

Published in The Express Tribune, November 29th, 2013.

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Reader Comments (34)

  • Malik Hamza
    Nov 28, 2013 - 11:48PM

    Welcome Nawaz Sharif’s Government .
    It was Musharraf era when Foreign Exchanges reserves grew in Sharif’s era it is decreasing.
    Shock much ?


  • Ishrat salim
    Nov 29, 2013 - 12:23AM

    Post 1998-99 PML N scenario….keep it up ! Insha Allah the nation is waiting for your call once again….”dóllar bhego mulk bachao “.but this time you will not receive same response, you can fool people once, not every time….very soon the people will embark on civil revolution due to persistant económic woes……


  • Gp65
    Nov 29, 2013 - 12:51AM

    While technically the reserves maybe at the level they were in 2001, if you look at them in terms of percentage of mports they are much lower now.

    The upfront disbursement was small precisely because Pakistan’s performance after 2008 program where I took the money and failed to reform.

    You say the second tranche is not yet disbursed but the fact is it is not even due for disbursement. Based on a schedule of quarterly disbursement, it would be due only on December 15. But this time around each disbursement is contingent upon a review and approval of agreed ref orms in the prior quarter, since IMF has pointedly asked for reserves to be improved and instead they are going in the exact opposite direction, it is possible that the second tranche maybe delayed.

    It is time the government took the necessary steps like monetary tightening and withdrawing SROs and curbing line losses which maybe politically unpopular but absolutely necessary. The depreciation thus far has been gradual and in fact is lower than what India experienced without even going to IMF and despite having reserves equivalent to 8 months of import. But if the Pakistani government does not shed its complacence there could be sharp devaluation forced by the markets as rupee loses credibility. You may recall that there was a close to 30% devaluation in 2008 and the situation at that time wasn’t so bad.Recommend

  • ali
    Nov 29, 2013 - 1:22AM

    The elite will continue to enjoy until the country is destroyed. After which they will fled.
    PMLN refuses to tax the rich and feudals because they are part of the problem. The parliament is a joke, a debating club. Pakistan need a revolution to survive.


  • saeed
    Nov 29, 2013 - 1:23AM

    Great Going PMLN election campaign they were beating there chests and were shouting all the way that they have the experience and experience politicians to take Pakistan out of the troubles…hats off to the experience which has gained new lows for the country…they even don’t have enough competent people to fill out the important ministries..shabaaaash sheraaaaaaaa….


  • Zain
    Nov 29, 2013 - 1:48AM

    Two payments to IMF done and a tranche expected now + spectrum auction in 1st quarter expected to fetch $1-$1.2 Billion. Things will stabilize soon.


  • Iqbal
    Nov 29, 2013 - 1:58AM

    shame on pakistan ……….


  • Waseem
    Nov 29, 2013 - 2:27AM

    It’s a very dangerous omen. There is lack of trust. Nawaz govt. failed to win the hearts of masses.


  • Careful reader
    Nov 29, 2013 - 3:08AM

    Once again under a nawaz sharif government the country is heading towards economic disaster with a devalued rupee and low reserves. There are external and internal threats. Do you remember seeing this movie before? It’s just like 1999 when nawaz sharif seized all private bank dollars and then there was economic chaos leading to the coup which brought pervez Musharraf to pakistan. For pakistan, democracy is code word for aristocratic and feudal dictatorship. The country is rapidly heading towards economic disaster. All the good that Musharraf had done has been destroyed over the last 6 years.


  • theOnlySane
    Nov 29, 2013 - 3:29AM

    @Malik Hamza,

    That was war on terror money, earthquake money and flood money.


  • sabi
    Nov 29, 2013 - 4:25AM

    @Ishrat salim:
    ”very soon the people will embark on civil revolution due to persistant económic woes……”
    Civil revolution (tsunami) is dying slowely on GT road.Now is time for namaz janaza for tsunami and saying azan to new born (Asian tiger).Period.


  • Waseem
    Nov 29, 2013 - 4:56AM

    NO. It was not terror money, earthquake money or flood money during Musharraf rule. It was real economic progress and trust which produced enough funds.


  • Gp65
    Nov 29, 2013 - 5:07AM

    The second tranche is not at all assured. It will only come if Pakistan fulfills its obligations.bat least with regards to implementing policies that can build reserves, it has done nothing. Do not rule out if there is a delay in disbursement of second tranche.

    Also unless it is a foreign telecom company bidding for the spectrum, money will come in rupees. While it will help in narrowing fiscal deficit, it would do nothing to address the problem on balance of payment front.Recommend

  • Taimoor
    Nov 29, 2013 - 5:34AM

    Fool me once shame on you fool me twice shame on me.


  • Zarb e Hanood
    Nov 29, 2013 - 6:38AM

    There is truth in the guns or butter proposition. Until Pakistan accepts the reality that there can be no parity with India and accepts its inferior position vis a vis India by scaling back her outsized military ambitions, it is inevitable that Pakistan will lurch from one crisis to another. Attempt of Pakistan to box above its weight class is not a consequence free option as some in Pakistan would like to believe.


  • DAJ
    Nov 29, 2013 - 7:06AM

    Don’t worry Ishaq Dar will take care of everything


  • RAW is WAR
    Nov 29, 2013 - 7:54AM

    since Pakistanis compare India on every aspect- let me compare here India’s Forex reserve. India has 283 Billion $ Forex reserves. It is roughly 80 times more than Pakistan’s, given we are only 5 times bigger than Pakistan in Population.


  • Max
    Nov 29, 2013 - 8:50AM

    Mentally NS is stuck in the 90s era. Now thanks to his ineptness Pakistan is being dragged backwards as well.


  • Muslim Leaguer
    Nov 29, 2013 - 8:58AM

    The country is now bearing the heat of excessive borrowing of USD16 Billion by the PPP regime and simultaneously keeping the value of PKR artificially inflated vis-a-vis USD & EUR. Even the dictator Musharraf had kept the PKR artificially inflated (overvalued) during the last 1.5 years of his Government because of the the elections year.


  • MAD
    Nov 29, 2013 - 9:23AM

    If anyone here is maintaining a foreign currency account in Pakistan I think its time to clear them out. History may repeat itself.Recommend

  • Dhaka
    Nov 29, 2013 - 11:41AM

    Hurray, our foreign reserve are much ahead than pakistan


  • A J Khan
    Nov 29, 2013 - 12:21PM

    Last time when he left office, reserves were as low as $300 Million. Thanks to Musharraf who put the economy on track and took the reserves to all time high with annual growth at 7,5%.
    But than the ides of November destroyed every thing when Lawyers movement resulted in destabilization of the State and economy. Chaudhry proved to be the collective wrong of the Nation.


  • Faisal
    Nov 29, 2013 - 4:01PM

    Things should only improve from here as some large US$ inflows are expected Dec onwards. However these will only provide a very temporary relief to the depreciating PKR /US$ exchange rate. Until strong measure to control pilferage and corruption are not taken at the top level things can only go down. Measures including stopping power line losses, reducing subsidy on power, stopping gas to the CNG sector, improving law and order, especially in Karachi and KPK and privatization of government entities which are a burden on exchequer we will not go any place.


  • Nov 29, 2013 - 4:53PM

    Like his hue and cry about engineered default in 1999, whereas the likely default situation was created by his ill conceived fiscal and monetary policies.


  • Gratgy
    Nov 29, 2013 - 5:20PM

    He said relations with the United States will also play an important role in determining the level of foreign exchange reserves in the coming months, as Pakistan can receive Coalition Support Fund payments of roughly $1 billion in the current fiscal year

    But then you are blocking the NATO supply route, The last time you blocked the route post Salala, the CSF payments, US delayed the CSF payments

    And no, Imran Khan and PTI are not non state actors


  • touseef
    Nov 29, 2013 - 5:27PM

    Why are you so worried about? America the great will always give green signal to IMF to give dollars to pakistan to be enjoyed by the elites till the day we remain there slaves


  • AAK
    Nov 29, 2013 - 7:32PM

    It’s total distrust by the people of Pakistan on Nawaz Sharif,Pakistani’s have billions but they are taking their money away.
    Musharraf era when Dollars were flowing to Pakistan,every one Pakistani or foreigner were trusting on Musharraf.


  • NDC
    Nov 29, 2013 - 9:04PM

    We miss Musharraf.


  • truthbetold
    Nov 29, 2013 - 10:51PM

    ET Mods, my post is factual and counters, with facts, the general claim that the economic situation was great under Musharraf. I also point to the basic reasons as to why Pakistan’s exchange reserves are dwindling. Please publish my post as it follows ET guidelines and based only on facts.

    @Malik Hamza:

    “Welcome Nawaz Sharif’s Government . It was Musharraf era when Foreign Exchanges reserves grew in Sharif’s era it is decreasing.”

    Musharraff and Shaukat Aziz used smoke and mirror and cooked the books to make it appear that Pakistan was financially well-off and that the GDP was growing. Also, don’t forget that during Mush’s time, Pakistan received over $20B in aid from the US and other donor countries.

    What you have been witnessing for the past five years is the after effect of Musharraf’s bad economic policies. Instead of using the $20+ Billions received to get the economy growing, Mush spent it on missiles, fighter jets, radars, ships, submarines and more nuclear bombs. Mind you Pakistan spends about $3B a year on nuclear bombs alone. Musharraf even spent the $3+ Billions received for 2005 earthquake victims and the floods on radars and fighter jets.

    What you witness today is the manifestation of the “we will eat grass to get nuclear bombs and bleed India through 1000 cuts in a 1000 year war” paradigm in effect since 1971.


  • sabi
    Nov 30, 2013 - 2:42AM

    Well said.Not to forget during nineties Pakistan was under US sanctions and no dollars were coming but that was the era when NS laid foundation of modern Pakistan.It was Musharaff’s luck that war on terrorism lift all sanctions and payment of debt were resheduled alonmg with massive amount of dollars pouring in.What were Musharaf achievements other than more terrorism and no big project of national significance.Yes he gave more freedom to mullah and media but just to maligne politicians and weaken democracy in Pakistan.Now lotas of general are in deep frustrations and trying hard to derail democracy once more.Magr ab wo general kahan.


  • careful reader
    Nov 30, 2013 - 5:38AM

    The feudals and aristocrats who support Nawaz Sharif and his autocratic government will continue to sing his praises, living in denial while Rome burns.


  • Last Word
    Nov 30, 2013 - 1:08PM

    A well penned exposure of Musharraf’s misspending billions of dollars of aid received on nuclear toys and other military infrastructure which could have been better spent in improving Pakistan’s economy. Had Musharraf spent this massive aid received during his nine years tenure on electric power enhancement, manufacturing units, education, railways and roads, Pakistan should have been a progressive state not dependant on foreign aid.


  • Pakistani1
    Nov 30, 2013 - 6:01PM

    Meanwhile, Nawaz Sharif is focused on bullet train, laptops and luxury buses


  • Waseem
    Nov 30, 2013 - 6:03PM

    @ sabi.

    Read the news again in November 2001 Pakistan had 3.5 billion dollars in its reserves. The war on terrorism had not yet started. So even without the dollars pouring in the reserves had reached over 4 3 Billion from Nawaz era 300 Million dollars. Correct your information. If the war had not started Pakistan would have been in much better situation.Recommend

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