Pakistan’s SBP Reserves Surge to Nearly Two-Year High of $9.12bn on IMF Tranche

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Photo by Vladimir Solomianyi on Unsplash

Pakistan’s central bank, the State Bank of Pakistan (SBP), saw its foreign exchange reserves rise to nearly a two-year high of $9.12 billion on May 3, thanks to a significant boost from the International Monetary Fund (IMF). This surge in reserves is due to the final tranche of funding from the IMF under its stand-by arrangement (SBA) program.

 Reserves Reached $9 Billion Mark

According to the SBP, the reserves increased by $1.114 billion to reach a total of $9,120.3 million as of May 3. The boost came mainly from the receipt of $1.1 billion from the IMF as the final tranche of the SBA program. This marks the first time since July 15, 2022, that the reserves have crossed the $9 billion mark. On April 29, the SBP received the second and final installment of the $3 billion short-term stand-by arrangement from the IMF. This funding helped Pakistan complete its loan program and prevent a sovereign debt default.

 Increase in Total Forex Reserves

The country’s total forex reserves also saw a significant increase, rising by $1.143 billion to reach $14.459 billion. Commercial banks’ reserves also experienced a rise, increasing by $29 million to reach $5.339 billion. Analysts view this development as encouraging, highlighting the central bank’s ability to improve foreign exchange reserves while meeting external debt obligations. Samiullah Tariq, the head of research at Pak-Kuwait Investment Company, mentioned that the increase in SBP reserves reflects not only the IMF’s final tranche but also consistent inflows that exceed the amount required for debt servicing and imports.

 SBP’s Debt Profile and External Debt Servicing

The SBP has shifted its debt profile towards bilateral and multilateral loans, paying off commercial loans. This change has resulted in an improved debt maturity profile, enabling the central bank to make significant debt repayments, including a $1 billion Eurobond. Despite weak financial inflows, the reduction in the current account deficit has allowed the central bank to meet its external debt obligations. The SBP is optimistic about maintaining the $9 billion reserve level by June 2024, despite upcoming external payments of $1.8 billion. The total external debt to be serviced for fiscal year 2024 was $24.3 billion, with $3.9 billion for interest payments and $20.4 billion for principal repayments. A significant portion of this debt has already been paid, with only $1.8 billion in principal payments remaining for the rest of FY24.

Upcoming IMF Mission

An IMF mission is expected to visit Pakistan this month to discuss a new program ahead of Islamabad’s budget-making process for the upcoming fiscal year. This discussion could have significant implications for Pakistan’s economic stability and its ability to maintain or increase its foreign exchange reserves. Overall, the increase in SBP reserves signifies a positive shift for Pakistan’s financial stability, with the successful completion of the IMF program providing a boost to the country’s economic outlook.

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