SBP's FX reserves see a jump of $556mn on Chinese loan

March 03, 2023 (MLN): The foreign exchange reserves held by the State Bank of Pakistan (SBP) increased by $556 million or 17.05% WoW to $3.81 billion during the week ended on February 24, 2023, marking the third consecutive increase on weekly basis, according to the data released by the central bank on Thursday.

The significant surge in SBP's reserves is attributed to the commercial loan disbursement from China wherein SBP received $700 million from China Development Bank.

“During the week ended on Feb 24, 2023, SBP received $700 million as GoP commercial loan disbursement from China. After accounting for external debt repayments, SBP reserves increased by US$ 556 million to US$ 3,814.1 million,” the statement issued by the central bank read.

Similarly, the country's total reserves rose by $541.4mn or 6.2% WoW to $9.26bn.

On the other hand, the reserves held by commercial banks saw a decrease of $14.2mn or 0.25% WoW to clock in at $5.45bn.

Cash strapped economy has been seeking loans from various sources including IMF to shore up its foreign exchange reserves and stabilize its economy.

The plummeting reserves have put significant pressure on local currency as well in the past weeks. However, the last week remained quite stable on optimism of the IMF deal since the government had complied with almost all the conditions.

Despite this, the prolonged delay in the IMF tranche, political upheaval, rising economic uncertainty, and default noise, the Pakistani rupee (PKR) has plummeted by 19 rupees against the US dollar in a single interbank session as the currency settled the trade at PKR 285.09 per USD on Thursday.

In FYTD, PKR lost 80.24 rupees or 28.15%, while it plummeted by 58.65 rupees or 20.58% against the USD in CYTD. On the other hand, within the last seven sessions, the local unit moved down by 8.47%, as per data compiled by Mettis Global.

The local unit is facing renewed pressure due to the delay and imposition of new conditions by the IMF, as per news reports.

It is important to note that the forex market was stable in February however, the delay in the IMF agreement and the higher open market rate in Afghanistan have led to a decline in the value of the rupee.

This has caused concern among investors as it could negatively impact foreign investment and destabilize the economy.

News reports further suggested that the IMF has demanded that Pakistan trade the dollar at the current Afghan trade rate in order to ensure stability in the currency market.

The government has already taken most of the other prior actions, such as increasing fuel and energy tariffs, withdrawing subsidies in export and power sectors, and generating more revenues through new taxation in a supplementary budget.

However, the fiscal adjustments demanded by any deal are likely to further fuel record-high inflation, which hit 31.5% year-on-year in February.

In a bid to unlock the deal as soon as possible, the SBP has jacked up the interest rate by 300 bps to 20% in an off-cycle review of the MPC meeting on Thursday.

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