The State Bank of Pakistan (SBP) has announced that the country’s foreign exchange reserves have reached an almost six-month high, totaling $8.221 billion, following an inflow of $464 million during the week ending on December 29.
The preceding week witnessed a substantial inflow of $853 million, contributing to a cumulative increase of $1.31 billion in the SBP’s reserves.
Despite this notable surge in the past two weeks, the Pakistani rupee demonstrated limited movement against the US dollar, registering a modest increase of just five paise in the interbank market. The closing price of the dollar in the banking market was Rs281.67 on Thursday, compared to Rs281.72 the day before.
The SBP’s forex reserves started to rise after the government secured a nine-month $3 billion Stand-By Arrangement with the International Monetary Fund (IMF). The immediate disbursement of the first tranche of $1.2 billion, coupled with inflows from Saudi Arabia and the United Arab Emirates, collectively augmented SBP reserves to $8.138 billion in July.
Implementing stringent measures to curb dollar outflows, such as mandating banks to arrange dollars before opening any Letters of Credit (LCs), resulted in a 16.3% reduction in the import bill and a 34.3% narrowing of the trade deficit during the first half of the current fiscal year.
The SBP’s reserves, earmarked for debt servicing, work in tandem with banks to maintain exchange rate stability. Analysts note that this stability has positively impacted recent rallies in the equity market.
Financial market experts highlight the IMF’s announcement that its executive board is scheduled to meet on January 11 to approve the release of the second tranche of $700 million this month. This development is seen as encouraging for the economy’s stakeholders.
The government has surpassed the revenue collection target set by the IMF for the first half of the current fiscal year, making it possible for the release of the final tranche of $1.2 billion in March under the Stand-By Arrangement.
There is a growing belief within the financial sector that the successful completion of the $3 billion Stand-By Arrangement could pave the way for another IMF bailout package for Pakistan.
Expressing its commitment to long-term economic stability, the government has already indicated its willingness to remain in the IMF program.
According to SBP reports, the country’s total foreign exchange reserves, including $4.999 billion held by commercial banks, have increased to $13.22 billion during the week.
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