Karachi, the SBP’s foreign exchange reserves increased to $9.157 billion by May 17, rising by $22 million. Despite a drop in total reserves to $14.585 billion, down by $41 million, the State Bank of Pakistan revealed on Thursday.
The country’s overall foreign exchange reserves decreased by $41 million to $14.585 billion. Commercial banks’ reserves also fell by $63 million to $5.428 billion. The central bank’s reserves can cover two months of import payments.
Since the end of June 2023, the central bank’s reserves have increased from $4 billion to $9.1 billion following the successful completion of the International Monetary Fund’s $3 billion stand-by arrangement, which concluded last month.
Pakistan’s current account deficit is improving steadily, thanks to reduced trade deficits and increased remittances. This improvement has also boosted foreign exchange reserves. The State Bank of Pakistan managed to make its external payments on time while building reserves due to the improvement in the current account deficit and financial inflows, particularly from the IMF.
Pakistan recorded a current account surplus of $491 million in April, the highest since March 2023, up by 13 percent from the previous month. The current account deficit for the first ten months (July-April) of this fiscal year was minimal at $202 million, a 95 percent decrease from $3.920 billion in the same period last year.
In its latest report, the State Bank of Pakistan mentioned that a slightly improved global outlook and domestic growth prospects are expected to increase foreign exchange earnings from exports and remittances.
While resilient global demand could boost Pakistan’s exports, decreasing global commodity prices could significantly reduce import prices, leading to an overall decrease in the import bill and thus improving the trade balance.
However, this outlook is subject to unfavorable changes in international commodity prices and ongoing tight global financial conditions. In such circumstances, it’s crucial to boost exports through reforms aimed at enhancing productivity and attracting foreign direct investment in export-oriented sectors to maintain a sustainable current account without limiting domestic economic activities.
The IMF and Pakistani officials concluded discussions regarding a new loan program on Thursday. The IMF has informed authorities that the next bailout package under the Extended Fund Facility (EFF) will be considered only if the upcoming budget aligns with IMF guidelines and is approved by parliament.
This could lead to formal negotiations and a staff-level agreement, potentially supplemented by $6 to $8 billion in climate finance, likely in July 2024.
Prime Minister Shehbaz Sharif is also visiting the UAE to discuss investment and regional cooperation matters. The IMF package may also require assurances of deposit rollovers from key Gulf countries and China.
