SBP’s Forex reserves increase by $77m to $7bn

Saudi Arabia's $3 billion deposit extension boosts the forex reserves, alleviating debt repayment pressure

The State Bank of Pakistan (SBP) reported a rise of $77 million in foreign exchange reserves in the week ending November 24, bringing the total to $7.257 billion.

The country’s overall reserves also saw an increase of $91 million, reaching $12.393 billion. Commercial banks experienced a $14 million uptick in reserves, totaling $5.136 billion.

While the SBP did not provide a specific reason for the reserve growth, analysts speculate that the central bank might have engaged in dollar purchases from the market to bolster its holdings.

This development follows Saudi Arabia’s extension of a $3 billion deposit with the SBP for an additional year. Initially provided as a loan to Pakistan in 2021, the deposit was set to mature on December 5 but has been rolled over into 2023.

In a statement, the SBP highlighted that this extension reflects Saudi Arabia’s continued support for Pakistan, aiming to bolster the country’s foreign currency reserves and contribute to its economic growth.

The extension of the Saudi deposit is seen as beneficial for Pakistan, particularly as it nears its gross financing needs. Analysts suggest that this move strengthens Pakistan’s agreement with the International Monetary Fund (IMF), potentially paving the way for the approval of the next $700 million tranche under the standby arrangement. If approved by the IMF board next month, the total amount disbursed by the IMF to Pakistan would reach $1.9 billion.

The financial assistance holds significant importance for Pakistan, addressing the challenges posed by a balance of payments crisis and the looming risk of sovereign debt default in July. The IMF has underscored the imperative need for external financing in the context of the $3 billion loan agreement established with Pakistan.

Upon approval of the forthcoming IMF loan tranche, an anticipated $1.5 billion funding injection from international lenders, primarily multilateral partners, is expected to further support the country’s financial stability.

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