SBP reserves dip further to $3.1b, data reveals

Analysts expect position to improve before end of fiscal year.

KARACHI:

Foreign exchange reserves held by the State Bank of Pakistan (SBP) decreased 4.3% during the week ending on January 24, according to data released by the SBP on Thursday.

The central bank’s foreign exchange reserves decreased $145 million to $3.1 billion compared to $3.3 billion that it held at the end of the preceding week.

According to a spokesman for the SBP, the decrease in the central bank’s reserves is partly attributed to the $76 million paid on account of external debt servicing and other official payments. There was no significant inflow from multilateral and bilateral sources during the week, he added.

Total liquid foreign reserves held by the country, which include net foreign reserves held by banks other than the SBP, stood at $7.9 billion on January 24, which is 2.1% less than the corresponding figure reported for the week ending on January 17.



Net foreign reserves held by banks amounted to $4.8 billion on January 24, which is slightly lower than the comparable figure reported a week earlier.

Speaking to The Express Tribune, Alternate Research investment analyst Umesh Kumar said his firm expects the SBP-held reserves to stand around $4.5-$5 billion by the end of the ongoing fiscal year.

Pakistan has to pay about $1.1 billion to the International Monetary Fund (IMF) in the remaining months of the fiscal year. This is significantly less than the payments the country made to the IMF in the first half of the current fiscal year, which stood at almost $2 billion, he added.

“Pakistan can receive foreign exchange inflows in two more IMF tranches amounting to $550 million each, apart from approximately $1 billion from the spectrum auction,” Kumar said, adding the payment of $800 million from Etisalat looks like a remote probability.

He added that Pakistan is likely to receive almost $700 million under the Coalition Support Fund (CSF) from the United States with a payment of $322 million expected in February alone. “We expect the privatisation process will start in the current fiscal year with the government divesting some of its holding in Oil and Gas Development Company, Pakistan Petroleum Limited and United Bank Limited,” Kumar said.

According to Global Securities research analyst Umair Naseer, the SBP-held foreign exchange reserves will see a slight dip in the coming week because of expected outflows. He was of the opinion that the foreign exchange position will get a long-lasting boost with a substantial improvement in foreign direct investment (FDI).

Pakistan received FDI of $416.1 million in the first half of fiscal 2014, which is 26.8% lower than the amount the country received in the corresponding six months of the preceding fiscal year. According to the latest SBP data, the sharp drop witnessed in July-December is largely due to a year-on-year decline of 66.2% in FDI during December alone.

“It is futile to expect FDI can increase in the short run. Issues like terrorism, energy crisis and political instability cannot go away overnight,” Naseer said.

Published in The Express Tribune, January 31^st,  2014.

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