SBP forex reserves rise $258 million to $4.6 billion

KARACHI: The foreign exchange reserves of the State Bank of Pakistan (SBP) increased by $258 million to $4.6 billion as of January 13, reversing a declining trend, the central bank data showed on Thursday, though it didn't disclose the origin of the inflows.

The slight increase in the reserves gave some breathing room to markets. However, they were taken aback by how the reserves rose as the cause was not mentioned by the SBP in its statement. After falling by $3.6 billion over the last eight weeks, the central bank’s reserves inched up.

Pakistan’s total forex reserves rose by $256 million to $10.4 billion, however, the commercial banks' holdings fell by $2 million to $5.8 billion. The country is having a difficulty paying for its imports as its foreign reserves continue to decline, which can cover less than one month's worth of imports.

“There's an urgent need to manage the liquidity crisis on the balance of payment front and the only way forward is the fulfillment of IMF prerequisites and resumption of the IMF program,” said Tahir Abbas, head of research at Arif Habib Limited.

Jameel Ahmad, governor of Pakistan's central bank, said after funding commitments from the Middle East, the country would receive dollar inflows in the coming days. The development may help the country’s struggling economy.

Ahmad stated at a gathering of businessmen that the SBP’s primary challenge was its finite amount of reserves. He added that due to declining reserves the central bank was no longer in a position to intervene in the interbank market as it once did.

Amid restrictions that have helped restrain the rise of imports, the current account deficit significantly decreased in the first half of the current fiscal year. However, foreign reserves are rapidly running out, and there is a persistent shortage of dollars. Businesses are unable to import raw materials, machinery, or parts, and many have had to close their operations.

The current account deficit fell to $3.7 billion in July to December 2022 from $9.1 billion in the same period a year earlier. It narrowed 78 percent year-on-year to $400 million in December.

Additionally, exports are suffering from a lack of raw materials, government's control over the exchange rate, a fall in demand, and skyrocketing inflation among Pakistan's main trading partners.

In the first half of the current fiscal year, remittances, which are essential to the country’s economy and provide a much-needed inflow of dollars to bolster foreign exchange reserves and finance the current account deficit, fell by 11 percent to $14.1 billion.

There has not yet been any progress in the revival of the International Monetary Fund loan programme. Finance Minister Ishaq Dar controls the exchange rate, which, according to analysts, which is in defiance of the IMF's idea for a free-floating currency rate. Demands from the IMF to stop the circular debt by raising energy costs and tax revenue are also being delayed. The deadlock has significantly enhanced an overall risk to Pakistan.