KARACHI: The foreign exchange reserves of the State Bank of Pakistan (SBP) slightly increased by $12 million to $8.055 billion during the week ended on Aug 11 against the previous trend of frequent declines since the first week of July.

The SBP reserves were $4.524bn on July 7, which jumped to $8.727bn after inflows from the IMF, Saudi Arabia and UAE.

However, the forex holdings of the central bank saw an outflow of $686m in less than a month despite tight control over imports.

This fall in reserves was followed by a massive rupee depreciation of 6.7 per cent or Rs18.5 against the US dollar during the July 4 to Aug 16 period. The SBP reserves are equally important for both the imports and debt servicing while it also grossly affects the exchange rate.

Currency experts said the falling SBP reserves may compromise the country’s ability to timely meet external debt repayment obligations. Pakistan has to repay $25bn in the current fiscal year.

Besides, the declining remittances and export proceeds also influenced the exchange rate. In the first month of the current fiscal year, the remittances declined by $500m to $2bn compared to $2.5bn in the same month last year.

In FY23, the remittances declined by $4.2bn. Merchandise exports also dipped by 8.6pc to $2.05bn in July.

Currency dealers said the dollar traded at Rs294.92 in the interbank and Rs302 in the open market on Friday.

Financial market experts believe the economic fundamental would further weaken as an interim government cannot take long-term policy decisions.

They said caretaker Finance Minister Dr Shamshad Akhtar is a good choice but there is little hope from the minister to put back the economy on the right track in a short time.

The central bank reported that the country’s total reserves stood at $13.379bn including $5.323bn of commercial banks in the week ended on Aug 11.

Published in Dawn, August 18th, 2023