SBP sees FX reserves at $16bn in this fiscal

KARACHI: Pakistan’s foreign currency reserves are expected to touch $16 billion in the current fiscal year, from $7.9 billion in August as an IMF bailout tranche worth $1.2 billion will unlock other inflows, central bank’s acting governor said on Tuesday.

“Unfortunately, the foreign exchange reserves fell sharply. Now we have a little bit less than $8 billion. The main reason has been the delay in the IMF review which has basically led to a drying up of external inflows. And of course debt servicing continued unabated,” Dr Murtaza Syed, actingSBP governor said in an interview to to Bloomberg TV.. “The good news of course is that the IMF programme is fully back on track. We will have the IMF board meeting in about six days in Washington DC that will release $1.2 billion in financing and would also catalyse multilateral and bilateral lending.”

The governor said the rest of the fiscal year expects forex reserves to go up to $16 billion.

“We also have additional financing relative to our financing needs of $4 billion dollars from friendly countries including Qatar, the UAE, and Saudi Arabia that will come through within an extra two months. So we will be over-financed.”

He said the IMF had estimated our financing needs over the next twelve months to be about $31 billion and the country had a financing of $38 billion secured.

“So we do expect the $1.2 billion to be disbursed (from IMF) in six days’ time. This inflow will catalyse additional financing as well.”

“In fact, our Prime Minister is in Qatar as we speak and we're expecting an announcement on that front as well. So in terms of financing as long as we stay in the IMF programme we will be fully financed, in fact we are over-financed. And that's what's going to help build our forex reserves,” the acting SBP governor said.

Dr Syed said sufficient foreign currency is available in the country to meet local demand, brushing off any chances of greenbacks shortage in the near-term.

“There was no chance that greenback would become scarce in Pakistan … central bank is not seeing any dollar shortages but we did have to take some administrative measures to control inports”.

“We will ease those (curbs) in the next few months. And as we do that we expect a tightening of fiscal policy that is baked into the budget for this year to help fuel domestic demand even

further. That will help keep our current account deficit limited to about 2 percent of GDP. That's very sustainable as long as we can do that we should be fine and our external financing needs will be fully met.”

To a question if the ongoing policy rate status quo is going to stay for the foreseeable future, he said, “I wouldn't say that. We will remain data dependent. I think we do have a forecast for inflation. We think we also have a forecast for growth and the current account we think inflation is going to peak in the next couple of months and then start to come down slowly”.

“Unfortunately, the necessary reversal of the energy subsidy package will leave inflation quite high over the rest of the year. It's going to add 18 to 20 percent but then it should decline quite sharply into next year because of these effects and the tight fiscal and monetary policies that we have as well as a normalization of global commodity prices. The right way to think about is if you will remain data dependent. We will see what happens. There's a lot of uncertainty in the world right now. Hopefully in six weeks’ time we'll have a little bit more information.”

Responding to how much pressure a Fed rate hike of 75 basis points would mount on Pakistan’s central bank to raise rates even more, he said, “Of course that's one of the variables that we watch. There are other variables as well as domestic developments. But of course we have also telegraphed in our monetary policy statement that one of the factors that we would look at is what interest rate moves are taken by the major global central banks. Pakistan is affected by what happens abroad. And of course there needs to be an appropriate interest differential between what we have as interest rates here and what interest rates are abroad”.