Forex: SBP reserves increase to $3.6b, data reveals

Inflows from multilateral and bilateral sources provide respite .

KARACHI:

Foreign exchange reserves held by the State Bank of Pakistan (SBP) increased 14.5% during the week ending on December 27, according to data released by the SBP on Thursday.

The central bank’s foreign exchange reserves increased by $464 million to $3.6 billion as opposed to $3.1 billion it held at the end of the preceding week.

According to a spokesperson for the central bank, the increase in the SBP’s reserves is mainly due to inflows of $558 million from multilateral and bilateral sources. The inflows represent $554 million received under the Extended Financing Facility from the International Monetary Fund (IMF) and $4 million that the country received from other multilateral institutions.

Total liquid foreign reserves held by the country− which include foreign exchange reserves of the banking sector− stood at $8.5 billion on December 27 as opposed to $8 billion, reflecting a weekly increase of 5.3%.

Net foreign reserves held by banks other than the SBP amounted to $4.8 billion, which was down $33.2 million from the preceding week.

The central bank paid out $169 million on account of external debt servicing and other official payments during the week under consideration. Out of these outflows, the SBP paid from its reserves $147 million to the IMF as the 25th instalment of the Stand-by Agreement during the week.

Pakistan’s foreign exchange reserves remained under pressure for the first half of fiscal 2013-14 despite IMF loan disbursements. Net foreign exchange reserves with the SBP on June 28 stood at more than $6 billion, but dropped by over 66% by the end of December.

Similarly, the current account deficit also rose to $1.8 billion in the first five months of the current fiscal year as opposed to a relatively small deficit of $684 million in the corresponding period last year.

With the repayment of the 26th installment on December 30, Pakistan has repaid the IMF $2.027 billion during the current fiscal year.

As a result of the rapid decline in reserves, the rupee has lost approximately 6% of its value since the beginning of the fiscal year. The currency traded at Rs108.50 to a dollar in November, but appreciated later on when the finance minister vowed to arrest the decline in the rupee’s value.

Speaking to The Express Tribune on Thursday, Global Securities research analyst Umair Naseer said his house believes the respite in the forex market is temporary at best given the insufficient inflows of the dollar into the economy.

“However, we anticipate lower depreciation going forward due to lower IMF payments and improved expected inflows,” he said.

Pakistan is scheduled to pay $1.1 billion in the second half of the current fiscal year compared to over $2 billion it paid in the first half. Pakistan will repay $1 billion in fiscal year 2014-15, which is much lower than the repayment of $3.1 billion in the current fiscal year, Naseer added.

Published in The Express Tribune, January 3^rd, 2014.

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