Government’s efforts to boost the foreign exchange reserves have borne fruit as the reserves held by the central bank have shot up to a 19-month high, surpassing the $10-billion mark.
The foreign exchange reserves held by the central bank increased 18% on a weekly basis, according to data released by the State Bank of Pakistan (SBP) on Thursday.
Earlier, the reserves had spiralled downwards, falling below the $7-billion mark, which raised concern over Pakistan’s ability to meet its financing requirements. However, inflows from friendly countries and multilateral institutions helped shore up the reserves.
On December 13, the foreign currency reserves held by the SBP were recorded at $10,892.9 million, up $1,659.3 million compared with $9,233.6 million in the previous week. According to SBP data, such levels were last seen in May 2018.
“This increase is attributed to multilateral and other official inflows including the $1.3 billion received from the Asian Development Bank (ADB),” said the SBP in a statement.
“A major improvement in the foreign exchange reserves came from a significant contraction in the current account deficit,” Taurus Securities’ Deputy Head of Research Mustafa Mustansir said, citing a statement issued by the SBP a couple of days ago.
“The bulk of the increase in the net reserve buffers is accounted for by the continued current account improvement,” the SBP reported.
The current account deficit dropped 73% to $1.82 billion in first five months (Jul-Nov) of the current fiscal year compared to $6.73 billion in the same period of previous year, according to the central bank.
Foreign investment in sovereign debt instruments like treasury bills and Pakistan Investment Bonds (PIBs) “accounts for less than one-fifth of the increase in SBP’s net reserve buffers at current levels”, the central bank said.
Mustansir added that foreign investment in the debt market and loans received from the International Monetary Fund (IMF) and ADB also played an important role in building up the reserves.
The IMF released the first loan tranche of around $1 billion in July. Earlier, Pakistan agreed with the IMF for a tough loan programme of $6 billion in May. The IMF board is scheduled to meet on Monday to consider the release of second tranche of $450 million to Pakistan.
Last week, the SBP also made a massive repayment of $1 billion for the maturing international Sukuk of Pakistan.
Overall, liquid foreign currency reserves held by the country, including net reserves held by banks other than the SBP, stood at $17,655.5 million. Net reserves held by banks amounted to $6,762.6 million. Earlier, the reserves had jumped on account of $2.5 billion in inflows from China.
Over time, the declining reserves have forced the central bank to let the rupee depreciate massively, sparking concern about the country’s ability to finance a hefty import bill as well as meet debt obligations in coming months.
Earlier, the SBP received $350 million under the Coalition Support Fund (CSF). In January last year, the SBP made a $500-million loan repayment to the State Administration of Foreign Exchange (SAFE), China.