KARACHI: The country’s foreign exchange reserves fell 3.8% or $595 million to $15.2 billion in the week ended June 3, hitting their lowest level since October 2019 due to the rising current account deficit, rising foreign debt repayments and falling inflows, the central bank reported on Thursday.
Foreign exchange reserves held by the State Bank of Pakistan (SBP) declined by $497 million (5.1%) to $9.226 billion on repayment of external debt, the SBP said. SBP reserves are also at their lowest since November 2019.
Central bank reserves are sufficient to cover 1.35 months of imports. Commercial bank reserves also fell 1.6% to $6.0 billion. Pakistan’s widening current account deficit continues to be a concern for the sustainability of economic growth.
This time, the current account deficit will inevitably widen amid soaring international commodity prices and strong domestic demand, according to a report by Arif Habib Limited.
Pakistan posted a current account deficit of $13.8 billion for the first ten months of fiscal 2022, down from $543 million in the same period last year.
This deficit is expected to reach $16.4 billion (4.3% of GDP) by the end of the current fiscal year, and decline to $11.1 billion next year (3.2% of GDP). GDP). The FY22 result will be slightly above the SBP’s forecast range of 4% of GDP, according to the report.
Running twin deficits, lack of potential capital inflows and other structural challenges put pressure on the rupiah amid a shrinking foreign reserves position. Nevertheless, the recent significant depreciation could reflect concerns about macroeconomic fundamentals and put greater pressure on Pakistan’s external instability.
However, with the postponement of repayment by G-20 countries, the disbursement of the IMF tranche after the success of the seventh review, potential inflows under bilateral/multilateral agreements and the renewal of existing Chinese external debts along with help from other friendly countries (Saudi Arabia and the United Arab Emirates), some pressure on foreign exchange reserves should be relieved, he noted.