KARACHI: The central bank’s foreign exchange reserves dropped for the first time in six weeks, shrinking by some $354 million during the week that ended on March 24, it said on Thursday.

Meanwhile, China is working on a request from cash-strapped Pakistan to roll over a $2 billion loan that matured last week, a top finance ministry official told Reuters, amid a stalemate in bailout talks with the International Monetary Fund (IMF).

The State Bank of Pakistan (SBP) said the reserves fell because of external debt repayment and stood at $4.24 billion — almost near where they were at the beginning of the month. Reserves held by commercial banks rose by $31m to $5.57bn during the week.

However, with the latest fall in SBP’s holdings, the country’s total liquid reserves are back at the sub-$10bn level.

Only last week, the reserves had increased to $4.6bn on the back of a $500m Chinese inflow.

Govt awaits rollover of $2bn Chinese loan

The government has been struggling to improve its reserves position, which is the main obstacle in convincing the IMF to resume a loan programme. Though the country has avoided default, it has been unable to make payments for imports. Pakistan’s external payments (mostly debt servicing) is the real cause of concern for both the country and the IMF.

The government has so far been unable to persuade its friends in the Middle East for dollars, while the Fund has also stuck to its guns — that it wouldn’t release a $1.1bn tranche unless Pakistan arranged the $6bn required to service debt in the current fiscal year.

A Chinese debt rollover would be critical for Pakistan at this stage. “It is a work in progress,” the official said in a text message to Reuters on Wednesday, referring to the rollover of the Chinese loan, which matured on March 23. “Formal documentation is underway.”

A formal announcement will be made, added the source, who spoke on condition of anonymity, without giving further details. Tahir Abbas, head of research at Arif Habib Limited, said that if China agreed to roll over $2bn, “Pakistan will not receive any inflow, but there would be no outflow to China”. As a result, the SBP’s reserves will remain the same.

The poor health of the country’s foreign exchange reserves has grossly devalued the rupee, slashed the imports to the extent that it now hurts economic growth and has kept the country out of international financial markets.

Meanwhile, the rupee gained 26 paise to the dollar to close at Rs283.66 on Thursday.

Published in Dawn, March 31st, 2023