SBP Forex Reserves Drop below $8bn Amid Debt Concerns

The State Bank of Pakistan reported a $63 million decrease in its forex reserves, now standing at $7.950 billion, attributed to foreign debt repayments. Meanwhile, the country's overall forex reserves dropped to $13.039 billion, despite a $4 million increase in commercial banks' reserves to $5.089 billion. While sufficient for approximately two months of imports, the economy grapples with challenges including record-high inflation and a depreciating rupee.

Although SBP reserves have grown significantly from $4.445 billion to $7.9 billion, concerns persist over their adequacy to meet expanding external financing needs. With the IMF stand-by arrangement set to expire in April, further funding may be required. SBP aims to maintain reserves above $8 billion for currency stability, but debt repayments and other obligations necessitate balance.

Despite balance of payments challenges, the country has managed repayment obligations, with $24.5 billion required for fiscal year 2023-24, a significant portion already repaid or rolled over. Although the January current account saw a deficit of $269 million, the fiscal year's deficit dropped by 71% compared to the previous year.

IMF prefers SBP reserves to reach $9 billion by fiscal year-end, contingent on inflow-outflow balance. Moody's Investors Services highlight Pakistan's high liquidity and external vulnerability concerns due to low forex reserves insufficient to cover extensive financing needs. Fulfilling debt obligations is expected, but challenges remain post-IMF programme expiry in April 2024.