SBP reserves fall below $10bn

KARACHI: The net foreign exchange reserves held by the State Bank of Pakistan (SBP) decreased by $146 million to $9.961 billion during the week ending June 19, 2020, according to data released by the central bank on Thursday.

This marginal decrease represents the first time reserves have dipped below the $10 billion-mark since in November 2019. Net reserves have steadily risen since, reaching $12.2 billion in early May, before falling again, mostly on account of external debt repayments. 

Importantly, the statement noted that during the current week, the SBP received $1.725 billion, including $725 million from the World Bank, $500 million from Asian Development Bank and $500 million from Asian Infrastructure Investment Bank.

These funds will be part of SBP weekly reserves data as of June 26, which will be released on July 2. 

These funds are critical for the SBP, as they act as an important buffer. Analysts have said that the surprise decision to cut the interest rate by 100 basis points on Thursday to 7pc took into account the incoming inflows, among other factors. 

The logic is that the SBP waited in order to make sure it had some reserves before cutting the interest rate again. That way, the extra reserves could act as a buffer to offset any outflows due to the reduced policy rate.

As for the recent marginal drop, the SBP said the decline is attributed to government external debt payments of $244.5 million.

Net foreign reserves held by commercial banks increased very slightly, from $6.66 billion to $6.76 billion. 

The total liquid foreign reserves held by the country fell marginally from $16.77 billion in the week ending June 19, to $16.73 billion during the week under review. 

Despite the expected inflows, overall reserves are expected to decline in the coming months, due to the combined pressure of a fall in exports and remittances due to the Covid-19 pandemic, and a rise in external debt repayments like those of May 2020. 

According to the latest SBP data, total exports of goods fell 40pc year-on-year to $1.129 billion in May 2020, while there was a 19pc fall in the inflow of workers’ remittances, which were recorded at $429 million.