SBP-held reserves continue downward trend

As the country continues to struggle with its worsening balance of payments crisis, the foreign exchange reserves held by the State Bank of Pakistan (SBP) continued to decrease, data shared by the central bank showed Thursday. 

The SBP, in its weekly bulletin, stated that its reserves reached $4.38 billion after decreasing by $74 million in the week ending May 5 due to external debt repayment.

It further said that net reserves held by commercial banks stood at $5.61 billion, around $1.23 billion less than the SBP’s reserves, taking the country’s total liquid foreign reserves to $9.99 billion.

Pakistan’s foreign reserves have declined sharply in recent months to a critically low level. The current reserves are not sufficient for even a month’s imports — a position that has remained the same as the country faces an acute balance of payments crisis.

Earlier this week, Moody’s Investor Service warned that the country could default without an International Monetary Fund (IMF) programme as its foreign exchange reserves were “very weak”.

The government has been in talks with the Washington-based lender since November for the release of a $1.1 billion tranche. However, a staff-level agreement (SLA) is yet to be signed despite the government’s claim that it has fulfilled all IMF conditions.

The revival of the stalled loan programme would not only release the tranche which is desperately needed to avert a default, but also unlock funding from other multilateral institutions.

Meanwhile, the government has imposed import curbs in a bid to reduce dollar outflows, which resulted in the country posting a current account surplus of $654 million in March — the highest since February 2015.

However, several companies across different sectors have partially or completely shut down operations in recent months citing inventory shortages and difficulties in opening letters of credit (LCs) due to the import curbs.

The rupee has fallen to a record low of Rs298.93 against the US dollar as reserves remain low and the prevailing political turmoil leads to fears of further delay in the IMF deal.