Foreign exchange reserves at their lowest since mid-March 2021
KARACHI: The country’s foreign exchange reserves hit their lowest level in the current fiscal year, central bank data showed on Thursday, a time when talks between the government and the IMF on the 7th review in the under the Expanded Financing Facility have continued the fund’s concerns about a relief package.
Pakistan’s foreign exchange reserves fell by $844 million in the week ended March 18, the State Bank of Pakistan (SBP) said. The country’s foreign reserve assets fell to $21.439 billion, the lowest since mid-March last year, from $22.283 billion a week earlier.
SBP reserves fell by $869 million to $14,962.4 billion on foreign debt and other payments, the bank said. Commercial bank reserves increased from $6.451 billion to $6.477 billion.
The relief package, which surprised economists given global oil prices and the country’s economic conditions, was announced as opposition parties prepared a no-confidence motion to push Prime Minister Imran Khan to step down. The subsidy over the next four months will require between Rs250 and Rs300 billion.
Analysts said the ongoing political tumult appeared to offset the conclusion of ongoing virtual talks to complete the review of the $6 billion loan program and was also negatively impacting the country’s economy.
Analyst Yousaf Saeed of brokerage Darson Securities said reserves fell due to a high current account deficit.
“Some external payments have also matured recently, including Eurobonds, which have greatly depleted reserves,” Saeed said.
A large current account deficit caused by heavy imports in the face of strong domestic demand and soaring world prices for oil and other commodities following the Russian-Ukrainian conflict had already spooked the rupiah, which lost 13.7% since the start of this financial year, fueling inflation.
The country’s rapidly rising import bill has also strained its foreign exchange reserves.
Pakistan’s imports grew by more than 65% year-on-year in the first half of this fiscal year, while exports increased by 25%. During the same period, the trade deficit more than doubled.
Analysts said a depleting currency pile increases the risks that the country will struggle to meet its next overseas debt repayment.
According to the international benchmark, foreign exchange reserves should be sufficient to cover three months of imports, but at present our reserves probably cover 2.2 months of imports,” said another analyst.
In recent years, the government has borrowed from bilateral lenders, global multilateral financial institutions and sold Eurobonds in international capital markets, which has helped the country shore up its reserves, despite large repayments. external debt.