SBP’s forex reserves fall to $9.8 billion

KARACHI: The State Bank of Pakistan’s (SBP) foreign exchange reserves again fell below $10 billion in the week that ended June 30 on foreign debt and import payments, it said on Thursday.

The SBP’s foreign exchange reserves dropped by $493 million to $9.8 billion as of June 30. The reserves held by the SBP are barely enough to cover 1.42 months of imports.

The country’s forex reserves fell by $453 million to $15.7 billion. Reserves held by commercial banks, however, rose by $40 million to $5.9 billion.

The forex reserves are depleting fast amid a stalled $6 billion International Monetary Fund programme. The country is also struggling with a widening current account deficit weighed down by higher imports, and surging inflation.

The SBP’s reserves have declined by $7.5 billion during the fiscal year 2021/22. The reserves stood at $17.3 billion in the previous year.

A $2.3 billion commercial loan from China helped provide support to forex reserves, which had been falling since January due to current account pressures, external debt repayments and paucity of fresh foreign inflows.

The dwindling reserves put pressure on the rupee, which fell 0.04 percent weaker to close at 207.91 to the dollar on Thursday. It ended at 207.99 in the previous session.

The rupee depreciated by 30 percent against the dollar in FY2022. The domestic currency closed at 205 on June 30, 2022, while it had ended at 158 to the dollar on the last day of FY2021.

The current account deficit rose to $1.4 billion in May, on the back of lower exports and remittances partly due to the Eid holiday. Based on Pakistan of Bureau of Statists data, the trade deficit rose to $4.8 billion in June, more than $1.7 billion higher than its February low.

While non-energy imports have continued to moderate in the last three months on the back of curtailment measures by the government and the SBP, this decline has been more than offset by the significant increase in energy imports, which rose from a low of $1.4 billion in February to an estimated record high of $3.7 billion in June.

“While this partly reflects higher prices, significantly higher volumes of petroleum also played a significant role. Without prompt additional measures to curtail energy imports—for instance through early closure of markets, reduced electricity use by residential and commercial customers, and greater encouragement of work from home and car pooling—containing the trade deficit could become challenging,” the SBP said in today's monetary policy statement.

“With such measures, the current account deficit is projected to narrow to around 3 percent of GDP as imports moderate with cooling growth, while exports and remittances remain relatively resilient,” it added.