SBP reserves rise to $10.309bn on Chinese deposits

KARACHI: Pakistan’s foreign exchange reserves rose sharply by $1.985 billion or 14pc as of June 24 boosted by $2.3 billion in Chinese inflows, the central bank said on Thursday.

The country’s forex reserves increased to $16.196 billion from $14.210 billion in the previous week. The SBP received proceeds of CDB (China Development Bank) loan amounting to RMB 15 billion. After accounting for external debt repayment, the SBP’s reserves increased by $2.071 billion to $10.309 billion, the SBP said in a statement.

However, reserves held by the commercial banks fell to $5.887 billion from $5.973 billion. The latest reserves numbers provided comfort to the worsening current account deficit and improving investor sentiment in the country’s economy. The Chinese inflows helped stabilise foreign currency reserves and supported the local currency. The expected disbursements of $1.9 billion from the International Monetary Fund will bolster the reserves in the near term. The potential dollar inflows are also likely to ease pressure on the balance of payments.

“The increase in reserves is due to inflow/renewal of Chinese deposits. It has increased the import cover to 1.5 months,” said Samiullah Tariq, the head of research at Pak-Kuwait Investment Company.

The deficit had widened to $15.2 billion in 11 months of the outgoing fiscal year from $1.2 billion a year earlier. A steeper increase in the July-May FY2022 current account deficit is led by a surge in the trade deficit, which rose 58.18 percent to $43.4 billion, amid hefty imports. A spike in global crude oil prices contributed to the rise in the country’s import bill.

Total imports increased 36 percent year-on-year to $65.4 billion in July-May FY2022, mainly due to higher oil imports, the SBP data showed. Petroleum imports soared 86 percent to $15.8 billion followed by agriculture and other chemical imports, which stood at $9.7 billion in July-May FY2022, compared with $7.5 billion in the same period of the last fiscal year.

The current account gap rose to $1.4 billion in May from $618 million a month ago. It widened by 123pc year-on-year. The deficit stood at $640 million in May 2021. Analysts and markets are hopeful that the IMF deal will go through soon as the government would be successful in taking tough decisions to secure the Fund financing. The IMF, in its recent statement, mentioned “completion of prior items” before its board approves the next tranche.