KARACHI: Chinese $1 billion loan helped the country’s foreign exchange reserves to snap up downward trend of the last one year and clock in at a three-month high of more than $10 billion, people familiar with the development said on Thursday.
The State Bank of Pakistan’s (SBP) foreign currency reserves increased to $10.349 billion last week from $9.010 billion in the previous week.
“During the week ending 27 July, 2018, SBP’s reserves increased by $1,339 million to $10,350 million, due to official inflows,” the State Bank of Pakistan said in a statement.
The SBP’s Chief Spokesman Abid Qamar declined to comment on whether or not Chinese loan was transferred to the central bank account.
“We have no idea about the source of the inflows,” Qamar added. “We have already said in our statement that the surge in the reserves is due to official inflows.”
The reason for the latest rise in the reserves is still unconfirmed. Sources, however, attributed it to the official inflows received from China last week.
“The reason for which the reserves increased is the inflows from China under the head of China-Pakistan Economic Corridor funding,” a well-placed source told.
People said China agreed to provide $2 billion to Pakistan and out of that $1 billion was received in the previous week, while another $1 billion will come shortly.
The official foreign exchange reserves rebounded after constant decline during the last one year. They stood at $9.509 billion in May compared to $11.389 billion a month earlier.
The reserves have been declining since June last year, exerting pressure on rupee value against the US dollar .
Rupee lost 20 percent against dollar four times in a row since December last year.
Analysts attributed the recent rupee appreciation to the official inflows. The currency plunged to 128 in the interbank market on July 26, whereas it closed at 124.05 on Thursday.
Economist Ashfaque Khan said the reserves now cover around two months of imports following the Chinese inflows.
“I think this is the Chinese money that raised the reserves,” Khan, who is also dean of School of Social Sciences and Humanities at National University of Sciences and Technology, added.
The country’s total foreign exchange reserves rose to $17.079 billion as of July 27 compared to $15.728 billion in the previous week.
The reserves, held by the commercial banks, stood at $6.730 billion compared to $$6.718 billion in the previous week.
The country’s external account position continued to deteriorate. The current account deficit widened to $18 billion or 5.7 percent of gross domestic product in FY2018.
The deficit was more than 40 percent over the preceding fiscal year due mainly to widening trade deficit. Capital-intensive machinery imports for the Chinese infrastructure development projects made imports to immensely outweigh the country’s exports.
Meager growth in workers’ remittances and foreign direct investment and increasing foreign debts are aggravating the balance of payments position.
The gross external financing requirement for the current fiscal year is expected to reach more than $31 billion.
International Monetary Fund projected the country’s external debt and liabilities to peak to $144 billion in the next five years from $93 billion in fiscal year of 2017/18.