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Reserves slide continues

Updated August 18, 2017

KARACHI: Foreign exchange reserves held by the country continued their downward slide last week, the State Bank of Pakistan (SBP) reported on Thursday.

Total liquid reserves dropped by $88 million to $19.94 billion on Aug 11.

The breakdown of foreign reserves showed that those held by the SBP amounted to $14.31bn while the holdings by commercial banks were $5.63bn.

APP attributed the decline in part to payments on external debt servicing as well as “other official payments”.

This is the lowest level the reserves have touched since June 2016. Reserves have been in decline since October 2016 when they hit the peak of $24.4bn.

Reserves held by banks, on the other hand, have hit a six-year high. Commercial banks have significantly increased short-term borrowing of foreign exchange in recent months. This is part of their efforts to replenish dollar liquidity in the face of a stable exchange rate amidst a growing current account deficit and falling reserves.

The SBP has sounded a note of caution on these increasing levels in subsequent reports, pointing out in one quarterly report that the level of short-term dollar borrowing by banks was approaching $875 million.

Published in Dawn, August 18th, 2017