KARACHI: Foreign exchange reserves held by the State Bank of Pakistan (SBP) further declined by $134 million to $7.8 billion during the week ending Nov 18.

The poor reserves position casts a negative impact on the exchange rate as the dollar is appreciating on a day-to-day basis in the interbank market. It appreciated by 50 paise during the last three working days.

However, the interbank rate provided by the SBP is significantly lower than the rate given by the exchange companies as they surrender the dollars to banks every day.

The Exchange Companies Association of Pakistan (ECAP) quoted the interbank rate of the dollar at Rs225 on Thursday, while the central bank reported the closing price at Rs223.92.

Rupee’s slide against US dollar continues

The falling SBP reserves are the main reason for the weakness of the local currency against the dollar. Currency dealers are not sure how long the current political uncertainty will continue in the country.

The foreign exchange reserves of the State Bank remained at around $8bn for more than a month, but they will fall with the payment of $1bn due on December 5 following the maturity of Sukuk bonds.

The marker fears that the dollar may appreciate after the payment of $1bn since the inflows are not in sight.

The government is engaged in talks with the IMF for the release of the next tranche but facing difficulties, mainly on the domestic economic front.

With the revenue collection declining, pressure is mounting on the government to levy more taxes for higher revenue generation as the fiscal gap is going higher than the target given by the IMF.

The main inflation (CPI) is already over 26 per cent (during the first four months of FY23) and more taxes would make life miserable for poor and middle-class people. Poverty in Pakistan is estimated at 50pc.

The State Bank reported that the country’s total reserves fell by $151m to $13.6bn by Nov 18 while the reserves held by the commercial banks stood at $5.82bn. The State Bank said the reserves of the central banks fell due to external debt repayments. The SBP reserves fell to $7.8bn from $8.4bn in July this year.

Published in Dawn, November 25th, 2022