SBP reserves rise by $393 million, helped by China refinancing

By Staff Reporter

KARACHI: Pakistan’s foreign exchange reserves held by the central bank rose by $393 million to $4.462 billion in the week ending June 30, helped by the receipt of official inflows and the refinancing of $1.3 billion in Chinese commercial loans.

The total reserves of the country increased by $405 million to $9.745 billion. The reserves of commercial banks rose by $12 million to $5.282 billion.

The analysts said SBP has received $1.3 billion from China last month as part of a bilateral arrangement to refinance its maturing debt obligations to Chinese lenders.

Pakistan paid $300 million to the Bank of China and $1 billion to the China Development Bank in June, but China agreed to roll over the loans to ease Pakistan’s pressure on its dwindling reserves and prevent default.

The reserves are expected to improve further as a result of a new deal with the International Monetary Fund (IMF), which agreed last week to release $3 billion in critical bailout funds after a long-delayed review process.

The IMF said its Executive Board will meet on July 12 to discuss details of a nine-month Standby Arrangement (SBA) for Pakistan, which will replace the expired Extended Financing Facility programme signed in 2019.

The governor of the SBP Jameel Ahmad said on Tuesday that the IMF deal will help shore up the country’s foreign exchange reserves and restore investor confidence.

He said Pakistan paid all of its debts to foreign creditors on time and expected improved inflows, which would be beneficial for the economy.

The cost of insuring Pakistan’s sovereign debt against default has also dropped significantly due to foreign investors’ growing confidence that Pakistan’s default risk has been eliminated, at least until it is under an IMF programme.

Pakistan’s 5-year Credit Default Swap (CDS) fell by 1,240 basis points to 4,676 basis points on July 4, following the agreement with the IMF.

Analysts said the IMF financing for nine months will help regain some investor confidence and pave the way for funding from Saudi Arabia, the United Arab Emirates, and other bilateral and multilateral sources.

However, they also warned of persistent risks to Pakistan’s financial stability in the medium term, as the country faces $25 billion in debt repayments in the year starting in July.

“Pakistan will need significant additional financing besides the IMF disbursements to meet its debt maturities and finance an economic recovery,” said Krisjanis Krustins, director of sovereigns for APAC at Fitch Ratings. “While the IMF likely sought and received assurances for such financing, there is a risk that this could prove insufficient, particularly if current account deficits widen again.”