KARACHI: The State Bank of Pakistan’s (SBP) foreign exchange reserves dropped 4.2 per cent to $7.498 billion during the week ended Nov 25, the central bank said on Thursday, linking the fall to external debt repayments.

The drop was $327 million in absolute terms and comes even before the SBP is set to make a payment of $1bn against sukuk (Sharia-compliant bonds) on Dec 2 (today).

The country is facing a long list of payments that amounted to $32-$34bn for the entire fiscal year. SBP Governor Jameel Ahmed recently said that despite payments of $1.8bn in November, reserves remained stable.

He has been confident from the very first day in the office that Pakistan would succeed in meeting the requirements of debt servicing.

He believes that the requirement would be met through inflows from international lenders, but the falling reserves held by the State Bank have damaged the exchange rate.

At the same time, low reserves are the main hurdle to improving the country’s image in the international market, where Pakistani bonds are being traded at less than half the actual price, making it impossible for the country to return to the international market for launching bonds, even at higher rates.

Pakistan received $500 million from the Asian Infrastructure Investment Bank this week. The World Bank has also initiated to provide funds for the rehabilitation of flood victims and inflows in this regard could be up to $2bn; however, they have yet to come.

The talks with IMF have been delayed on the issue of an increased fiscal gap since the government missed the first-quarter target.

However, the Federal Board of Revenue said that tax collection exceeded both the five-month target of Rs2.68 trillion as well as the monthly target of Rs537bn.

As per provisional figures, Rs2.688tr was collected against Rs2.33tr a year ago, an increase of over 15.3pc. The collection in November rose 11.5pc to Rs538.2bn against the target set for this month.

Despite these positive developments, falling inflows through remittances could be a real worry for the government. The remittances, recorded at $31.2bn in the previous fiscal year, have been on the decline for the last three months.

Bankers say the main reason for the drop is the low official exchange rate, while the price in the grey market is much higher than the official banking rates.

The grey market has emerged stronger these days, offering Rs20-Rs30 per dollar higher than the banking rate. The banks have been losing up to $300 million per month due to remittance inflows. The $300m is apparently coming through the grey market in the country.

The SBP reported on Thursday that the country’s foreign exchange reserves fell to $13.378bn while the holdings of the commercial banks were $5.879bn.

However, despite the falls in the State Bank’s reserves, the rupee appreciated by 26 paise in the interbank market to close at Rs223.69 on Thursday.

Published in Dawn, December 2nd, 2022

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