Financial crunch: State Bank’s foreign reserves down to $6.72b

As the country faces a serious economic crisis, the foreign reserves held by the State Bank of Pakistan had dipped to $6.72 billion which is a four-year low – an amount barely enough to meet one month of imports.

The latest data released by the State Bank of Pakistan (SBP) shows that there was a reduction of $784 million in foreign reserves during the week ending Dec 2.

Previously, the foreign reserves with the central bank were recorded at $6.64 billion on Jan 18, 2019.

However, foreign reserves held by commercial banks stand at $5.867 billion, which means the total amount stands at $12.58 billion.

Although strengthening foreign exchange reserves remains the top agenda of the new government since it took the helm in April, the amount have since dropped by more than $4 billion from around $10.9 billion.

It means there are serious doubts about the country’s ability to pay back the huge amount of foreign loans, as these concerns have depressed the market and the exchange rate remained unstable during the ongoing fiscal year.

The SBP attributed the fall in foreign exchange reserves to a payment of $1 billion against the maturity of sukuk (Islamic bonds) – a claim rejected by some analysts who say the foreign reserves were not calculated after the disbursement.

On the other hand, SBP Governor Jameel Ahmed says the central bank paid $1 billion and another $1.2 billion to two commercial banks which had agreed to relend the same amount in a few days.

The State Bank said inflows of $500 million from the Asian Infrastructure Investment Bank (AIIB) offset the SBP outflows.

Meanwhile, the latest figures exacerbates the prevailing situation as Pakistan is also grappling with the rupee’s devaluation.

On Thursday, the local currency got weaker against the US dollar by another 21 paisa in interbank trading and traded at Rs224.37.

Meanwhile, the greenback was available for Rs229.70 to Rs232 in open market as the authorities concerned are unable to fill this huge gap between interbank and open market exchange rates.

In fact, this difference widened during trading on Thursday by one rupee thanks to weak macroeconomic indicators and dwindling foreign reserves.

However, the actual exchange rate in unofficial market is over Rs250, reports from different cities say, as the gap has become sustainable and needs to be addressed.

During the current financial year (FYTD), the rupee has so far lost Rs19.52 or 8.70 percent in value against the US dollar while the loss stands at Rs47.85 or 21.33 percent since January 1 (CYTD).

On the other hand, the rupee was down against the pound sterling and the euro as well in interbank trading, as pound was traded for Rs273.52 against Wednesday’s value of Rs272.04 with euro available at the rate of Rs235.91 when compared with Wednesday’s value of Rs234.53.

Pakistan is expecting another tranche from the International Monetary Fund (IMF), but the ninth-review talks have been delayed apparently due to Fund’s criticism over an increased fiscal deficit.

But the government is unwilling to impose more taxes for higher revenues, while the IMF insists the government must consolidate the economy.

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