By Staff Reporter
KARACHI: Pakistan’s foreign exchange reserves plunged almost 4.6 percent or $648 billion in the first week of August on higher external debt payments and dried dollar inflows, central bank data showed on Thursday.
The central bank reserves fell to their lowest level in almost three years at $7.83 billion as of August 5 from $8.385 billion a week earlier. The reserves held by the State Bank of Pakistan (SBP) dropped by $555 million or 6.6 percent on a weekly basis.
The central bank’s data showed reserves plunged to their lowest level since October 2019. Commercial banks’ reserves dropped 1.6 percent to $5.730 billion. The reserves available with the SBP are enough to cover a little over a month’s imports.
The SBP said the reduction in the reverse was due to external debt payments.
“Debt repayments are expected to moderate during the next three weeks of this month,” the central bank said in a statement. “In fact, around three-fourth of debt servicing for the month of August was concentrated during the first week.”
Increasing twin deficits — the current and trade deficits, lack of foreign currency inflows, and increasing foreign debt servicing obligations led to the fast depletion of the country’s forex reserves.
A delay in the revival of the International Monetary Fund (IMF) bailout along with the lack of pledges of funding from friendly countries is adding pressure to the foreign reserves and the local unit.
However, analysts see the resumption of the IMF programme, expected in the last week of August, and falling imports would help shore up dwindling foreign reserves.
IMF’s $1.2 billion tranche, after a delay of a few months, will be released in the last week of August as the country has met almost all pre-conditions for the bailout funding. IMF board is expected to take up Pakistan’s funding request at a meeting due on August 24.
The staff level agreement was reached on July 13 and Pakistan met prior actions related to energy tariff adjustments, rise in taxes, and petroleum levy. This would help secure funding from other sources and friendly countries.
“Funding gap for FY2023 is now estimated at $32.2 billion including debt repayment of $23.5 billion which is much lower than earlier estimates due to lower than expected current account,” brokerage Topline Securities said in a report said.
“Resultantly, rollover risk will reduce especially for $1 billion of Eurobond and $4 billion of the commercial loan in FY2023 as reliance on commercial borrowing may not be needed.”
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