LAHORE: According to the latest figures released by the State Bank of Pakistan (SBP), foreign reserves have now plunged to a four year low after a 4.39 per cent drop on a weekly basis.
On July 13, foreign currency reserves held by SBP were recorded at $9,063.6 million, down $415.9 million compared with $9,479.5 million in the previous week.
Net reserves held by commercial banks stood at $6,618.9 million, meanwhile, total liquid foreign reserves held by Pakistan, including net reserves held by commercial banks, stood at $15,682.5 million.
Earlier in April, reserves held by the SBP surged by $593 million due to official inflows, meanwhile, Pakistan also raised $2.5 billion in November 2017 by floating dollar-denominated bonds in the international market in a bid to inflate official reserves. Moreover, Pakistan received $622 million from the Asian Development Bank (ADB), $106 million from the World Bank and $350 million under the Coalition Support Fund (CSF).
However, in January, SBP made a $500-million loan repayment to the State Administration of Foreign Exchange (SAFE), China. Although, SBP states payments on account of external debt servicing as the major reason for declining reserves, however, SBP’s release cited no reason for the decline this time around.
This unprecedented drop in reserves raises serious questions over Pakistan’s ability to cover its debt obligations while also managing the ever-increasing import bill. Currently, Pakistan only has enough reserves to cover 1.5 months of imports. Meanwhile, as a general consensus, analysts believe that following this drop Pakistan has no other option but to opt for a bailout programme.
Capital Stake Director Research Maha Jafar Butt said “This further decline in reserves shall build up more pressure on the stressed economy. The currency has already fallen to an all-time low against the dollar, increasing the import bill and inflation is also on the rise. The uncertain political situation has played its part, however, one of the first tests of the new government shall be fixing the economy. Be it going to the International Monetary Fund (IMF) as is being debated or something else but they will have to bring along a solid plan.”
Moreover, SBP has already devalued the Pakistani rupee against the dollar for the fourth time since December 2017 due to severe pressure on the Pakistani currency, which traded at Rs128.60 interbank on Thursday, cumulatively shedding close to 22 per cent to the US dollar since December. With reserves now falling further and an import bill hovering around $6 billion a month, concerns have increased over an imminent balance of payments crisis.
Pak Kuwait Investment Co. AVP Research Adnan Sheikh told Profit, “Pakistan foreign exchange reserves have fallen to an alarming level, reserves with the central bank of just over $9 billion are at the lowest since 2014 and not enough to even cover even 2 months of imports. This raises concerns over the country’s ability to meet obligations in the coming months and would most likely result in further deterioration of the currency.”
Meanwhile, SBP on Thursday injected Rs1.268 billion into money market for eight days as reverse repo purchase through its open market operation. The rate of return of accepted is 7.53 per cent per annum, said a separate SBP release.