Forex reserves move 8.81pc higher in second week of March

According to the State Bank of Pakistan (SBP) the foreign exchange reserves held by the central bank grew 8.81 percent on a weekly basis. Earlier, the reserves had spiraled downwards, declining below the $7-billion mark, which grew concern over Pakistan’s ability to meet its financing requirements. However, financial assistance from the United Arab Emirates (UAE) and Saudi Arabia assisted shore up the foreign exchange reserves.

The economists believed that foreign exchange reserves are no doubt significant assets of any country because they are considerably affected through exchange rate policy, monetary policy, regulations, external instability and the impact of the crisis that may come from the environment. They also urged that without the adequate reserves the government may be forced to change the trade and exchange rate policies, which may not be in the long run interest of the country. Furthermore, accumulation of foreign reserves involve two kinds of costs, the opportunity cost and the adjustment cost and they cannot say holding maximum level of reserves is beneficial for the economy. When accumulation of reserves exceeds the optimal level, it explains the inefficient allocation of resources.

The present statistics also showed that during the second week of March 2019, the foreign currency reserves held by the SBP were registered at $8,838.7 million, up $715.8 million as against to $8,122.9 million in the previous week. SBP received an inflow of $1 billion from the UAE as placement of funds. After taking into account outflows relating to external debt and other official payments, the SBP reserves grew $716 million during the week. On the other hand the overall, liquid foreign currency reserves, held by Pakistan, counting net reserves held by banks other than the SBP, reached at $15,709.6 million. Net reserves held by banks worth to $6,870.9 million. During November 2018 Chinese official assured Pakistan of a financial package to increase its foreign currency reserves, hinting that it would be bigger than that pledged by Saudi Arabia. With the anticipated $2.5 billion in deposits accepted presently, China’s contribution in the present fiscal year alone will surge to $4.5 billion.

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Earlier, the reserves dipped to $9.06 billion, forcing the central bank to let the rupee depreciate massively for the fourth time since December 2017 and sparking concern about Pakistan’s ability to finance a hefty import bill also meet debt obligations in coming months. It is also recorded that during April previous year, the SBP’s reserves grew $593 million because of official inflows. A few months ago, it is also to note that the reserves surged because of official inflows including $622 million from the Asian Development Bank (ADB) and $106 million from the World Bank. The SBP also received $350 million under the Coalition Support Fund (CSF) earlier. In January 2018, the SBP made a $500-million loan repayment to the State Administration of Foreign Exchange (SAFE), China. According to the Moody’s report, the country does not have much foreign exchange reserves to pay its public and private external debt due over this year. It is also reported that foreign exchange reserves are low, and gross borrowing requirements are large in the country and Sri Lanka, threatening the ability of these governments to refinance debt and fund deficits affordably. The officials of the credit rating agency mentioned that the total public and private external debt due over 2020 is larger than foreign exchange reserves. The experts also recorded that foreign exchange reserves are on lower side in Pakistan. The lower reserves threaten government to refinance debt.