KARACHI: Pakistan’s SBP’s foreign exchange reserves increased by $ 131 million to reach $ 11.418 billion on the week ended on Nov 22, the central bank said Thursday.
Since the start of the current FY25, the SBP reserves have been rising every month which is due to both the inflow of dollars and buying from the currency market by the SBP.
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The specifics revealed how the SBP’s reserves enhanced to $9.43bn in August up from $9.22bn in July, $10.73 in September, and $11.203bn in October.
Currency market specialists pointed out that the increased remittance and export earnings will enable the central bank to sell additional dollars in the currency market and replenish the external reserves to meet the external debt servicing liabilities promptly.
Industry sources have claimed that the government has not yet succeeded in a task as obtaining debt rollover from China, Saudi Arabia, and the UAE remains challenging.
Earlier this year, the finance minister suggested that these friendly nations had not prepared to rollover the combined $14 billion debt.
According to these analysts, this can be a time of transformation for the economy as the country will not be in a position to afford this $14bn in FY25. They opined that it would reduce the external account dramatically, and the surplus current account may go up with a considerable deficit.
The sector in the financial area was prepared for a great impact if the three countries said ‘no’ in relation to rollover.
Some of them stated that owing to higher exports of human capital the remittances would still stay that high. A million people annually immigrated from Pakistan in 2023.
The compromise of total reserves in the country during the week, according to the State Bank was $16.076bn of which the commercial banks were $4.657bn. Total rose only marginally while commercial banks slightly cut their buffer.
The State Bank of Pakistan SBP has informed that the foreign exchange reserves have increased by $2.2 billion since July 2024, which shows that the external account has gained strength and there is more confidence in the economy in itself.
Key Factors Behind the Increase:
- IMF Support: The Stand-By Agreement with the IMF has helped to make the necessary loans available for disbursement, the impact of which directly feeds the reserves.
- Rising Exports: Favourable performance in the export-oriented sub-sector has helped to ensure a constant flow of foreign currency.
- Higher Remittances: The increase in worker’s remittances has provided a fillip to reserve accumulation.
- Debt Management: The government’s actions to restructure or lengthen external debt have also lowered outflows.
- Foreign Investment: Referring to the current developments in global investments, there has been a boost in Inflows from FDI and portfolio investments.
Frequently Asked Questions (FAQs):
1. What are SBP’s foreign exchange reserves used for?
SBP reserves are primarily used to stabilize the exchange rate, meet external debt obligations, and provide a buffer against economic shocks.
2. How does the increase in reserves benefit the economy?
Higher reserves improve Pakistan’s ability to repay external debt, stabilize the rupee, attract foreign investment, and reduce currency volatility.
3. What role does the IMF program play in this increase?
The IMF’s Stand-By Agreement provides financial assistance and unlocks access to international financial markets, contributing to the rise in reserves.
4. Does this mean Pakistan’s economic problems are solved?
While increasing reserves is a positive step, Pakistan still faces challenges such as high external debt, fiscal deficits, and structural economic vulnerabilities.
5. How will this affect the rupee’s value?
An increase in reserves generally strengthens the rupee by easing demand for foreign exchange, reducing depreciation pressures.
6. What is the current reserve level of SBP?
As of November 2024, the SBP’s reserves have reached approximately $9.2 billion, compared to $7 billion in July 2024.