SBP forex reserves slide for third week

KARACHI: The foreign exchange reserves held by the central bank fell for the third consecutive week, as the country faced pressure from debt repayments and a looming expiry of an International Monetary Fund loan programme.

The central bank's held foreign exchange reserves fell by $54 million to $7.896 billion in the week ending March 1, the State Bank of Pakistan said on Thursday.

Total forex reserves, including those held by commercial banks, decreased by $19 million to $13.020 billion, the SBP said in a statement. The reserves of commercial banks, however, increased by $35 million to $5.124 billion.

Last week, the central bank reserves had fell by $63 million. The SBP’s reserves are enough to cover around two months of imports. Given Pakistan's precarious external position, one of the top priorities for the newly formed coalition government will be obtaining funding from both bilateral and multilateral partners. The nation's foreign exchange reserves are far less than the $25 billion in external debt payments it has to make in the next fiscal year, which begins in July.

The country's new prime minister, Shehbaz Sharif, has given the go-ahead to expedite talks with the International Monetary Fund in light of the impending expiration of the $3 billion loan programme in April. A final tranche of $1.1 billion is yet to be released under the current stand-by arrangement.

After the cabinet is formed, an IMF delegation is expected to visit Islamabad to review the current loan programme. To perhaps increase the programme size from $6 billion to $8 billion by including climate finance, Pakistan intends to seek a new bailout with the IMF.

Every day there are plenty of reports in the media about new IMF proposals. These suggestions can include everything from pension reforms to tax adjustments for different income levels to—most recently—an emphasis on federal and provincial tax collections. These suggestions seem to set the framework for critical reforms and provide the foundation for future IMF programmes.

Recently, the Pakistan Business Council (PBC) has urged the IMF to provide Pakistan with a long-term five-year funding programme.

No doubt, the IMF will require the mounting debts to be reprofiled to restore confidence in the economy. A larger as well as a longer IMF programme would provide creditors the necessary comfort, the PBC said in a letter to IMF’s Resident Representative in Pakistan, Esther Perez Ruiz.

“That said, the primary reason why the previous programmes failed to lead to sustainable reforms was the lack of political will and determination of various governments,” it added. "However, the IMF too needs to reflect on the design of its assistance package. The flaws in the economy have worsened over the years and the new programme would need to take account of this."