Debt servicing: Forex reserves fall by over $2bn in 5 weeks

KARACHI: The country’s foreign exchange reserves declined by over $2 billion during the first 5 weeks of this fiscal year due to massive external debt servicing.

The reserves also reached below the $14 billion mark in the first week of August followed by continuous debt payment.

Pakistan’s total liquid foreign exchange reserves plunged to $13.56 billion as of August 5, 2022 compared to $15.742 billion on June 30, 2022, depicting a decrease of $2.2 billion in the first five weeks of this fiscal year. The recent decline in reserve is due to massive scheduled external debt servicing.

However, the State Bank of Pakistan (SBP) Thursday said that external debt repayments are expected to moderate during the next three weeks of August. “In fact, around three-fourth of debt servicing for the month of August was concentrated during the first week,” it added.

Critical level: SBP-held foreign exchange reserves fall to $8.39bn

The country for the last few months is facing a serious crisis of foreign exchange due to a record $39.58 billion trade deficit followed by a $72 billion import bill in the last fiscal year (FY22). The government is making efforts to build the sliding foreign exchange reserves and recently borrowed $2.5 billion from China.

Pakistan has also reached staff level agreement with IMF and the board is likely to release $1.1 billion as tranche of Extended Fund Facility (EFF) end of this month.

Pakistan posted a record $17.4 billion current account deficit in FY22 as against $2.8 billion in FY21. The policy makers are also expecting a sharp decline in the current account deficit followed by lower import bill.

According to the weekly foreign exchange report issued by SBP on Thursday, the country foreign exchange reserves further declined by $647 million during the last week. The total liquid foreign exchange reserves held by the country stood at $ 13.561 billion as of Aug 5, 2022 compared to $14.209 billion as of July 29, 2022.

During the week under review, SBP’s reserves decreased by $ 555 million to reach below the $8 billion mark due to external debt payments. The reserves held by the SBP declined to $ 7.83 billion at the end of the last week as against $8.385 billion a week earlier.

Net foreign reserves held by commercial banks also dropped $ 92.5 million to $5.7301 billion as of August 5, 2022 down from $5.823 billion as of July 27, 2022.

Copyright Business Recorder, 2022