KARACHI: A massive outflow of $869 million week-on-week mainly for debt repayments dragged the foreign exchange reserves of the State Bank of Pakistan (SBP) below the $15 billion mark for the first time in almost a year.

The continuous decline in foreign exchange reserves is adding to the woes of the government which is already facing a record current account deficit of its tenure amid a steep devaluation of the rupee against the dollar.

The central bank on Thursday reported that its foreign exchange reserves in the week ending on March 18 plunged to $14.962bn, which is the lowest level since April 2021 when forex holdings of the central bank stood at $15.598bn. The SBP reserves in March 2021 were $13.493bn.

Financial market experts, however, did not see the big fall in the foreign exchange reserves as ‘very significant’ saying it was not new and it happened in the past too.

“The falling SBP foreign exchange reserve is an indicator for low reserves but it does not reflect the situation is going out of control,” said Tahir Abbas, head of research at Arif Habib Securities.

The SBP forex holdings recorded a fall of $1.424bn in 18 days of this month while it has lost about $5.11bn since August 2021. During this period the State Bank received $2bn from the IMF and Sukuk proceeds. If the $2bn inflows are also counted, the total loss of SBP’s reserves reached $7bn since August.

The government is planning to launch another sukuk issue of $1bn during the current fiscal FY22 to support its falling foreign exchange reserves.

The situation looks grave, particularly in the wake of 47pc increase in imports and a $12bn current account deficit during the first 8 months of FY22.

“The 47pc increase in import bill resulted in a trade deficit of $12bn but the country has already paid this amount. It is the net reserves the State Bank currently possesses,” said Mr Abbas.

He said the government has also been making debt repayments as it has paid about $6bn during the first two quarters of this fiscal year while it had paid $13.4bn in debt servicing during the entire FY21.

He said the country paid $2bn to $2.5bn for the import of vaccines to counter the Covid-19 during the current fiscal year, which increased the import bill. Amid higher commodity prices mainly oil made imports very costlier ride.

Currency dealers in the interbank and open market were not sure whether the falling SBP reserves could cost heavily to the exchange rate.

“The dollar is appreciating due to many reasons including higher oil prices and higher demand from importers,” said Zafar Paracha, general secretary Exchange Companies Association of Pakistan. He said the dollar may rise further against the rupee in the coming days but not entirely due to falling SBP reserves.

The State Bank has been assuring the market that proper funding is available to meet the current account deficit and external debt servicing. It also believes to receive about $30bn remittances in FY22.

Published in Dawn, March 25th, 2022