KARACHI: The foreign exchange reserves of the State Bank of Pakistan (SBP) experienced a further decline of $54 million during a week, exacerbating the vulnerability of the exchange rate.

This marks the second consecutive drop in the central bank’s reserves, with a $63m decrease reported last week, highlighting imbalances in the outflows and inflows of dollars.

The SBP regularly purchases dollars from the interbank currency market to maintain reserves at a certain level. The International Monetary Fund (IMF) aims to see the SBP’s reserves reach $9 billion by the end of fiscal year FY24.

However, the inflows are insufficient to maintain reserves even at $8bn. Some financial sector experts have suggested that the next tranche of $1.2bn from the IMF could assist the SBP in improving its reserves, but it would be a temporary increase, since the debt repayment of about $6bn is still unresolved. The government has been attempting to borrow, but the international market is unresponsive to Pakistani bonds at this time due to both political and economic instability.

As of March 1, the SBP reported reserves of $7.895 billion, while commercial banks held $5.124bn, summing up to a total country reserve of $13.020bn.

The currency market did not react negatively to the decline in the reserves of the SBP, although the exchange rate has been under pressure from the dollar before experiencing a slight increase in the PKR price.

The dollar prices kept increasing over three working days, but on Thursday, the PKR found some room for improvement. The PKR appreciated by six paise as the dollar sold at Rs279.29, compared to Rs279.35 the day before.

Published in Dawn, March 8th, 2024