With arrival of inflows from China and UAE, Pakistan's total liquid foreign reserves mounted up by $2.4 billion during March 2019. The country's foreign exchange reserves are gradually increasing and crossed $17 billion mark end of the last month due to realization of pledged financial support from friendly countries. Cumulatively, Pakistan had received over $3 billion from China and UAE as loan in March 2019 to support balance of payment and build the depleting foreign exchange reserves.
The State Bank of Pakistan (SBP) received inflow of $1 billion from UAE as placement of funds for year on March 12, 2019. While, on March 25, inflow of RMB 15 billion equivalent to $2.2 billion were arrived as proceeds of the loan obtained by the government of Pakistan from China.
After taking into account outflows relating to external debt and other official payments, the total liquid foreign reserves held by the country surged by $2.44 billion to reach at $17.398 billion mark on March 29, 2019 compared to $14.956 billion on March 1, 2019.
As the inflows were arrived into the government's account, major increased has witnessed in the SBP's reserves. During the last month, reserves held by the SBP increased by $2.375 billion to $10.492 billion up from $8.116 billion.
Similarly, with an increase of $66 million, reserves held by banks reached $6.907 billion mark end of the month.
Pakistan is facing a crisis of balance of payment as foreign exchange reserves were on decline due to slow foreign inflows and massive external debt servicing and higher current account deficit. However, the efforts of the government have started to materialize in the shape of bilateral inflows from Saudi Arabia, UAE and China to reduce pressure on external account.
Most of pledged amount by friendly countries have already been realized. As per commitment, Saudi Arabia released $3 billion for one-year placement with Pakistan. The amount released in three tranches of one billion dollar in November, December and January. UAE also supported with $2 billion placement with Pakistan for one-year.
In addition, China has also extended loan of RMB 15 billion equivalent to $2.2 billion at low interest rate to support balance of payment. Analysts believed that along with the Saudi deferred oil payment facilities, these inflows have an important role in meeting the external financing gap for FY19, thereby, relieving pressure on the foreign exchange reserves and mitigating volatility in the forex market.
It may be mentioned here that during this fiscal year net financial inflows were lower than last year in the wake of absence of sovereign debt issuance, lower short-term borrowing, drop in FDI, and continued outflow of equity investments. Therefore, SBP's foreign exchange reserves have been declined $2.7 billion during first half of this fiscal year (FY19).
In addition, macroeconomic challenges including rising inflationary pressures, elevated levels of twin deficits and low foreign exchange reserves forced the Monetary Policy Committee (MPC) to further tighten the policy rate.