SBP forex reserves remain steady at $8 million, with IMF inflows to follow

An employee counts banknotes at a currency exchange office in Baghdad on February 14, 2023. – AFP

KARACHI: The central bank’s foreign exchange reserves rose by $25 million to $8.006 billion in the week ended April 26, the State Bank of Pakistan (SBP) said on Thursday.

The country’s foreign reserves rose by $36 million to $13.316 billion. Commercial banks’ reserves also increased by $11 million to $5.310 billion. After receiving $1.1 billion from the International Monetary Fund this week as the final tranche of a $3 billion loan program, the SBP’s reserves have increased to $9 billion. The amount will be reflected in the SBP’s reserves for the week ending May 3, the central bank said in a statement issued earlier this week.

The IMF Board of Governors approved the immediate disbursement of financing after completing the second and final review of the nine-month standby arrangement at its meeting on Monday.

Central bank governor Jameel Ahmad informed analysts after the monetary policy meeting on Monday that foreign exchange reserves are currently in a comfortable position. The SBP has paid off its commercial loans and now the debt profile consists of bilateral and multilateral loans, which has resulted in an improvement in the debt maturity profile, Ahmad said.

Despite weak financial inflows, the reduction in the current account deficit has allowed the central bank to pay down significant debt, including the repayment of a US$1 billion Eurobond.

Analysts believe that the central bank is maintaining its reserves by buying dollars on the market. The SBP is optimistic that it can maintain the reserve level of $9 billion by June 2024, despite upcoming external payments of $1.8 billion. During the fiscal year 2024, the external debt to be repaid amounted to $24.3 billion. Of this amount, $3.9 billion was allocated to interest payments, while the remaining $20.4 billion was earmarked for principal repayments. Most of this debt has already been repaid and, according to the SBP, only $1.8 billion of principal remains to be paid in the remaining months of FY24.

An IMF mission is expected to arrive in Islamabad in mid-May to start talks on a new rescue package. Muhammad Aurangzeb, Pakistan’s finance minister, said the country may have a staff-level agreement on the new program by early July. The Fund and the government are already discussing the new financing.

The country’s economy faces a precarious balance of payments as it has to repay nearly $24 billion in debt and interest in the coming fiscal year – an amount significantly larger than the central bank’s foreign exchange reserves.