- IMF's board of governors expected to approve allocation in August
The new expected allocation of International Monetary Fund's (IMF) special drawing rights (SDR) could bolster Pakistan’s reserves by $2.8 billion, said Fitch Ratings on Monday.
In its 'External Liquidity Strains Ease in Some APAC Frontier Economies' report, Fitch Ratings said Pakistan has benefited from the disbursement of IMF resources under its Extended Fund Facility, and more recently from Saudi Arabia’s agreement in June to an oil assistance package.
"In the last six months, official reserves have risen in most of Asia-Pacific’s frontier economies - defined in this context as Bangladesh (BB-/Stable), Laos, the Maldives (CCC), Mongolia (B/Stable), Pakistan (B-/Stable) and Sri Lanka. Sri Lanka is the sole exception, with reserves falling to $4 billion by end-May 2021.
It added that all six of these frontier markets should benefit from the expected new allocation of SDR by the IMF.
"Most notably, it could bolster Sri Lanka’s reserves by $780 million and by $2.8 billion in Pakistan. We expect the IMF’s board of governors to approve the allocation in August."
IMF First Deputy Managing Director Geoffrey Okamoto in April said that the Fund intends to distribute the $650-billion allocation of SDR monetary reserves to member countries this summer.
Pakistan FX reserves stood at $23.26 billion during the week ended June 18, 2021. On a week-on-week basis, total reserves held by the country decreased around $330 million compared to the total figure of around $23.6 billion in the week ended on June 11, 2021. Meanwhile, reserves with the SBP fell 2.2 percent or $311 million in the week ended June 18, 2021 compared to the week before. The fall was attributed to external debt repayments.
"In Pakistan, the government’s adherence to a market-determined exchange-rate regime will continue to serve as a shock-absorber, and should help keep the current-account deficit contained," said Fitch.
"Pandemic-related trade distortions are likely to ebb in the coming months with the rollout of vaccine programmes globally, but this process could be lengthy in countries where vaccination moves slowly."
Fitch said remittances have been another source of support to Pakistan's external positions since the start of the pandemic, and remain surprisingly strong.