SBP forex reserves dip below $8bn amid debt woes. Pakistan’s central bank, the State Bank of Pakistan (SBP), has reported a decline of $63 million in its foreign exchange reserves, falling to $7.950 billion by the week ending February 23.
This decrease is attributed to foreign debt repayments, as stated by the SBP on Thursday.
In parallel, the country’s overall foreign exchange reserves experienced a drop of $59 million, reaching $13.039 billion during the same period.
Conversely, commercial banks saw a slight uptick in reserves, rising by $4 million to $5.089 billion. Despite this, the SBP’s reserves remain sufficient to cover roughly two months of imports.
Pakistan’s economic challenges persist despite a $3 billion bailout received from the International Monetary Fund (IMF) last summer.
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Factors such as soaring inflation, currency depreciation, and dwindling reserves pose significant hurdles to stability.
Although the SBP’s reserves have seen a notable increase from $4.445 billion at the close of the previous fiscal year to $7.9 billion as of February 23, both experts and international rating agencies view these levels as insufficient given the nation’s expanding need for external financing.
With the current IMF stand-by arrangement set to expire in April, the impending coalition government is anticipated to seek further funding from the global lender.
Analysts note the SBP’s efforts to maintain reserves above $8 billion to stabilize the currency, though obligations such as debt repayments and profit repatriation necessitate certain outflows.
Despite facing challenges in balance of payments, Pakistan has managed its repayment obligations reasonably well.
The SBP indicates a need for $24.5 billion in external financing for the fiscal year 2023-24, a significant portion of which has already been addressed through repayments or rollovers.
While the current account recorded a deficit of $269 million in January, marking a decrease from the previous month’s surplus of $404 million, the deficit for the first seven months of the fiscal year stands at $1.1 billion, reflecting a 71% reduction from the same period last year.
The IMF projects the SBP’s reserves to reach $9 billion by the fiscal year’s end, contingent upon the balance between inflows and outflows.
However, concerns persist regarding Pakistan’s credit profile, as outlined in Moody’s Investors Services’ latest report.
As SBP forex reserves dip below $8bn amid debt woes, the report underscores the government’s high liquidity and external vulnerability issues, primarily stemming from low foreign exchange reserves.
It raises doubts about Pakistan’s ability to meet its exceptionally high external financing needs once the current IMF program concludes in April, despite expectations of fulfilling external debt obligations for the fiscal year ending June 2024.
