KARACHI: Foreign reserves of the State Bank of Pakistan (SBP) have shrunk by more than half a billion dollars in a week, mainly due to international debt servicing, according to data released Thursday by the central bank.
SBP reserves fell by $562 million to $17.03 billion in the week ending January 14. The central bank uses its foreign exchange reserves to service international debt, which has grown rapidly over the past three years.
The SBP said the latest $562 million weekly decline in reserves was due to foreign debt and other payments.
Reserves for the SBP and the country as a whole have been falling since August. The data shows that the SBP has lost $3.04 billion since August 2021, while its reserves stood at $20.07 billion. Statistics available on the SBP website show it was the highest amount since 2016, while researchers said the figure was an all-time high.
External debt, other payments causing decline
However, growing debts, especially commercial loans, have consumed much of the central bank’s reserves.
The country’s external debt currently exceeds $127 billion. Pakistan needs more than $20 billion in the current fiscal year to meet its overseas obligations.
Despite record remittances in the first half of the current fiscal year, the country needs more dollar inflows to close the current account deficit. The gap crossed the $7 billion mark for July-November 2021-22. With the trade deficit widening, there are fears that the current account deficit could be higher than what economic managers had originally expected.
The country’s total foreign exchange reserves have also shrunk by $3.74 billion since August 2021. Their sum reached a record high of $27.08 billion in August.
The least impact was on reserves held by commercial banks. Outflows were $680 million between August 2021 and January 14. The current amount of foreign exchange reserves held by commercial banks is $6.31 billion. In fact, commercial bank reserves improved by $11 million in the week ending January 14.
The country is preparing to launch a $1-1.5 billion Islamic bond in the international market, which will improve foreign exchange reserves. In addition, the government is also trying to reduce its import bill to reduce the trade deficit, which will ultimately improve the country’s balance of payments.
The SBP announced another measure on January 19 to facilitate exporters who are a major source of foreign exchange earnings. The central bank digitized the export finance process and moved it online. The move is aimed at boosting exports, which grew by 25% in the first half of the current fiscal year.
Posted in Dawn, January 21, 2022