KARACHI: Pakistan’s foreign exchange reserves have declined $9.78 billion in the past seven months, owing to demand for the dollars for import payments and external repayment of government debt.
According to the details released by the State Bank of Pakistan (SBP) on Thursday, the foreign exchange reserves of the country fell to $17.477 billion by the week ended April 1, 2022. The country’s foreign exchange reserves hit an all-time high of $27.228 billion on August 27, 2021.
The foreign exchange reserves are declining for the last eight consecutive weeks and recorded a fall of $6.24 billion since February 4, 2022, when the reserves were at $23.721 billion.
The official forex reserves of the central bank, which is the benchmark for calculating the financial strength of a country, also fell to $11.32 billion, which are less than two months of import cover. The import bill for the month of March 2022 stood at $6.186 billion, according to the Pakistan Bureau of Statistics.
The official SBP reserves are at the lowest level since June 2020. The central bank reserves also included $3 billion received from Saudi Arabia to support the balance of payments position. The official foreign exchange reserves of the SBP were at $11.23 billion by the week ended June 26, 2020.
The central bank witnessed a weekly decline of $728 million to $11.32 billion by the week ended April 1, 2022, compared with $112.047 billion a week ago or March 25, 2022.
The SBP attributed the decline to a major slump in the repayment of external debt. Previously, the central bank recorded an all-time high of $20.15 billion official reserves by the week ended August 27, 2021 after Pakistan received around $2.75 billion from the International Monetary Fund (IMF) under general allocation of Special Drawing Rights.
To boost foreign exchange reserves, the country raised Eurobonds worth $2.5 billion on March 30, 2021.
The foreign exchange reserves also climbed on account of $2.5 billion as inflows from China. In 2020, the SBP successfully made foreign debt repayment of over $1 billion on the maturity of Sukuk. Currency experts believe that the recent fall in the foreign exchange reserves would adversely affect the local currency.
The rupee has recorded a continuous fall since the start of the current fiscal year due to expansion in economy after ease in coronavirus, which resulted in domestic demand. However, the local currency recorded a sharp decline; following the war between Russia and Ukraine that made the international oil market volatile.
The rupee recorded a decline of around Rs30.64, or 19.45 per cent, from Rs157.54 to the dollar on June 30, 2021 to Rs188.18 as of April 7, 2022.
Pakistan needs funds in foreign currency to build up foreign exchange reserves and support the balance of payments position. The immediate injection of foreign current into the reserves is necessary to support the local currency, as well.
The current account deficit of the country swelled to $12.1 billion during the first eight months (July-February) 2021/22. During the same period of the last fiscal year, the current account posted a surplus of $994 million.
The current account deficit narrowed to $1.91 billion in the fiscal year 2020/2021 from the deficit of $4.45 billion in the preceding fiscal year.
