KARACHI: The central bank’s foreign exchange reserves shrank by over half a billion dollars during the week ended on July 21, primarily due to external debt repayments, the bank said on Thursday.

State Bank’s reserves fell by $541 million to $8.186 billion by the close of the week. The total foreign reserves held by the country stood at $13.534bn, including $5.348bn held by commercial banks.

The central bank’s reserves increased at the beginning of the new fiscal year in July after support from the International Monetary Fund, Saudi Arabia and the United Arab Emirates. The reserves rose to $8.7bn after fresh inflows.

Pakistan’s external debt servicing would be around $25bn this year, which can affect the balance of payments. The current account deficit has significantly dropped to $2.5bn in the previous fiscal year from $17.5bn a year ago, mainly due to a large cut in the import bill.

However, after a short-term agreement with the IMF, the government has eased the imports, which can widen the current account deficit. Imports are expected to be higher during this fiscal year than the previous one, while exports are unlikely to increase or at least remain the same.

Exchange rate

Finance Minister Ishaq Dar said on Thursday that China has rolled over a $2.4bn loan to Islamabad for two years.

“Pakistan will make interest payments only over the next two years,” he tweeted, meaning the waiver was only for the principal loan amount.

After the report, the dollar lost 59 paise to the rupee in the interbank market to close at 286.45 on Thursday. The rupee also strengthened in the open market, closing at 291 against the dollar after a gain of Re1.

The same report was circulating in the media a day ago without official confirmation, but it also impacted positively on the rupee, as the dollar shed Rs1.48 in the interbank market on Wednesday.

Published in Dawn, July 28th, 2023