KARACHI: The foreign exchange reserves held by the State Bank of Pakistan (SBP) plunged $784 million to a nearly four-year low of $6.72 billion during the week that ended on Dec 2, the central bank said on Thursday.

According to the central bank data, the SBP reserves were last recorded below this level during the week ended on Jan 18, 2019, when it had some $6.64bn.

Net foreign reserves held by commercial banks now stand at $5.867bn, meaning the country’s total liquid foreign reserves are now $12.58bn.

Strengthening the foreign exchange reserves remained the top agenda of the new government since it took the helm in April. However, SBP’s reserves have since dropped by more than $4bn from around $10.9bn at the time.

Central bank currently holds $6.72bn, barely enough to cover over one month’s worth of imports

Analyst say the falling reserves may make it more difficult for the country to repay foreign loans; the remaining amount of over $6.7bn is just enough to cover over a month’s imports.

SBP Governor Jameel Ahmad said in a podcast on Thursday that during the last five months, inflows remained just $4bn but the figure was expected to rise in the second half of the current fiscal year ending June 2023.

The central bank attributed the fall in foreign exchange reserves to a payment of $1bn against the maturity of sukuk (Islamic bonds). However, a senior analyst, who wished not to be named, said the $6.7bn reserves were not calculated after the payment for bonds.

Mr Ahmad said in the interview that the SBP paid $1bn and another $1.2bn to two commercial banks, which have agreed to relend the same amount in a few days.

The State Bank said that inflows of $500m from the Asian Infrastructure Investment Bank (AIIB) offset the SBP outflows.

Analysts and researchers have expressed concern about the country’s ability to pay back the huge amount of foreign loans. The frequent concerns have depressed the market and the exchange rate remained unstable during the ongoing fiscal year.

The country is now expecting another tranche from the International Monetary Fund (IMF), but the ninth-review talks have been delayed apparently due to Fund’s criticism over an increased fiscal deficit.

The government is unwilling to impose more taxes for higher revenues, while the IMF insists the government must consolidate the economy.

Independent economists believe the government needed to generate additional revenue of about Rs800bn to get the next IMF tranche.

However, the political cost of squeezing this extra revenue from citizens “is too high for the present government, which is the main hurdle”, the analyst said.

Meanwhile, the demand for dollars remains high in the interbank market, while the open market offers no hard currency. The dollar rose 0.09pc to close at Rs224.37 in the interbank market on Thursday.

However, most market players don’t trust the rates given by the State Bank, saying the deals were actually being done at higher prices.

Published in Dawn, December 9th, 2022