Wednesday, May 25, 2022

Pakistan Forex Reserves Fall To Lowest Since December 2019

This is because of an increase in current account and trade deficits, higher external debt payments and dried dollar inflows, as per a report.

Pakistan Forex Reserves Fall To Lowest Since December 2019
Representative image of foreign currency REPRESENTATIVE IMAGE-FILE

Pakistan's foreign exchange reserves this month fell to its lowest level since December 2019 to $16.376 billion, as per a media report.   

The country's foreign exchange reserves decreased by $178 million or 1.1 per cent in the week ended May 6 to stand at $16.376 billion, as per a Geo News report, whereas Pakistan's central bank reserves also fell to a 23-month low, decreasing by $190 million to $10.308 billion.

The decline was attributed to outflows related to external debt repayments. Analysts estimate the central bank's latest reserves can cover imports for 1.54 months.

The report cited bank's data and reported that inflows clocked in at $16.4 billion in the week from $16.5 billion a week earlier.

The reserves of commercial banks, however, soared up to $6.067 billion from $6.054 billion.

The cash-strapped country's fall in foreign exchange reserves is because of an increase in current account and trade deficits, higher external debt payments and dried dollar inflows, according to a media report on Friday.

Increasing twin deficits — the current and trade deficits, lack of foreign currency inflows, and increasing foreign debt servicing obligations led to the fast depletion of the forex reserves. The falling reserves put pressure on the currency as it plunged to an all-time low of Rs 191.77 per dollar in the interbank market.

The delay in the revival of the International Monetary Fund (IMF) bailout along with the lack of pledges of funding from friendly countries is adding pressure to the foreign reserves and the local unit.

Pakistan-Kuwait Investment Company Head of Research Samiullah Tariq said the decline in the reserves was nominal.

“However, in terms of imports cover, we are lower than three months, and we have to go into the IMF programme to stabilise the reserves,” Tariq was quoted as saying.

Prime Minister Shehbaz Sharif, who took office last month after the ouster of Pakistan Tehreek-i-Insaf's Imran Khan, faces a battle to secure the revival of the IMF bailout as a bailout is a prerequisite for further financial assistance from other bilateral and multilateral creditors.

Pakistan needs quick foreign currency inflows to meet import and debt payments amid falling foreign exchange reserves.

The present government will also have to cut costly energy subsidies introduced by the then PTI government.

The move requires increasing petroleum and electricity prices to get the nod from the IMF for the release of the next loan tranche.

Pakistan's new Prime Minister Shehbaz Sharif earlier this month visited Saudi Arabia and the United Arab Emirates but could not manage to obtain pledges of immediate financing.

Rollover of $2.3 billion in Chinese commercial loans has also not been materialised yet, the report said.

Islamabad and the IMF will likely begin policy-level discussions on May 18 in Doha, which would depend on withdrawing fuel subsidies to resume the programme and extend its tenure by up to one year and size to $8 billion.

The new government’s reluctance to remove subsidies on fuel and electricity - which are the pre-conditions for the revival of the IMF programme - dampened investors’ sentiment.

Moreover, investors are concerned about the falling foreign currency reserves - as the inflows from remittances and export proceeds are not sufficient to meet the market demand — amid growing external debt payments and soaring imports.

According to the government claims, the premier's visit to Saudi Arabia was successful and the government has asked for a package of $8 billion but no signal has been received from the Saudi side yet.

In its latest report on Pakistan, the IMF has forecast an annual growth of 4 per cent, against the country's central bank's estimates of around 4.8 per cent.

(With PTI inputs)