SBP Reserves Shrink By $2.9bn

KARACHI: After the State Bank of Pakistan (SBP) announced a large outflow of $2.9 billion on Thursday, the rupee sank to a historic low of Rs183.70 versus the US dollar in the interbank market.

The SBP said that its foreign exchange reserves fell to $12.047 billion in the week, ending on March 25 because of a large repayment of Chinese loans, with the balance being ordinary debt payments. The SBP said that “this drop reflects repayment of external debt, notably a substantial syndicated lending facility from China.”

The SBP did not specify the amount to be repaid to Chinese syndicated loans. However, media reports said that the SBP had reimbursed China for $2.4 billion.

“The rollover of this syndicated facility is being handled and is expected shortly,” the SBP stated, adding that the funds will be returned to the reserves once the rollover is completed.

Foreign Minister Shah Mehmood Qureshi, who is now in China, said his Chinese colleague told him that Beijing had agreed in principle to offer Pakistan a $2.4 billion rollover in commercial loans.

Despite $2 billion in IMF and Sukuk revenues, the SBP reserves have been declining since August 2021. The SBP’s foreign exchange reserves have decreased by $8.026 billion to $12.047 billion from $20.073 billion in August 2021. It has dropped to its lowest level since October 2020.

The political crisis in Pakistan led to withdrawals of foreign capital from domestic bonds, causing the local currency to fall.

In March alone, $387 million in Pakistan Investment Bonds and Treasury Bills departed the country.

Pakistan has borrowed extensively from China in the last three years to satisfy its international obligations, although the economy has already been burdened by earlier debts owing to the Paris Club and other financial organisations.

Increased import growth resulted in a large trade imbalance, which has so far resulted in a current account deficit of almost $12 billion in FY22. Currency analysts and traders claimed the situation has worsened because of the rising political instability.

In the interbank market, the dollar rose to Rs183.70 before closing at Rs183.48. The SBP has been attempting to keep the market calm by gradually increasing the value of the dollar.

“Because of the encashment of portfolio investments, the rupee is rapidly depreciating.”

“Moody’s remarks on increasing susceptibility owing to political uncertainty speed the slide up,” said Tresmark currency analyst Eman Khan.

During the week, the country’s overall reserves dipped to $18.554 billion, while commercial banks’ holdings fell to $6.507 billion.