Pakistan Foreign Exchange Reserves decline further drastically

Pakistan Foreign Exchange Reserves decline further drastically

ISLAMABAD - Pakistan’s foreign exchange reserves have been unabatedly depleting so far in the month of July, which saw an outflow of $778 million in the past 21 days.

According to the State Bank of Pakistan (SBP), the foreign exchange reserves decreased to $9.01 billion from $9.788 billion during the period of June 29 to July 20.

The reduction of foreign exchange reserves was mainly due to the repayment of the heavy loans and their interest to various foreign banks and international agencies. ------------------------------

On the other hand, the foreign exchange reserves maintained by the private banks increased by $121 million, reaching $6.71 billion during the same period.

Overall, the foreign exchange reserves held by the central bank and private banks decreased to $15.72 billion from $16.38 billion during the period under review.

Managing foreign reserves’ liquidity in such circumstances proved to be quite challenging for the central bank. SBP’s liquid foreign reserves witnessed a net reduction of S$ 7.1 billion to reach US$ 9.5 billion as of July 20, 2018.

Depleting foreign exchange reserves is one of the two major serious concerns of the economy especially when the current account deficit is at a record high while prices of petroleum products are getting higher in the international market.

The newly formed government has to tackle the issue of depleting foreign exchange reserves through short-term and long-term measures.

SBP commented in its recent report:

The country’s growth prospects are encouraging, with benign inflation and favorable outlooks for exports and remittances, and some relief expected from reduced non-energy import payments down the road. However, until there is a significant improvement in the current account balance, the payment pressure will continue to fall on the country’s reserves. This, in turn, creates the constant need to arrange external financing so that the foreign exchange reserves position offers some level of comfort.