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According to the data provided by the State Bank of Pakistan (SBP) on Thursday, May 29, 2020, there is a huge drop of $1.7 billion in its reserves. It was due to the repayment of debt to other countries and financial institutions. Whereas there is a slight increase in the reserves of commercial banks, from $6.52 billion to $6.55 billion. The total foreign exchange reserves are now at $16.9 billion.
This decrease in reserves of SBP, also become a cause of the decline in the net reserves of state bank of Pakistan. This decline will cause to depreciation in the value of Pakistani Rupees and appreciation in Dollars.
This decline will also affect the country’s liquid foreign reserves. From the data released by the state bank of Pakistan, the total liquid foreign reserves will decrease by $2 billion approximately in the current week.
The reason behind this shortfall is attributed to the government’s external debt repayment of $1.669 billion. Due to external debt repayments, country reserves are also decreasing from previous months.
The current foreign exchange reserves situation is getting worse due to foreign debt repayments and COVID-19. Therefore the Government is thinking about rescheduling and restructuring foreign debts to get immediate relief on the economic front.
During December Asian Development Bank (ADB) helped out by $1.3billion to maintain reserves. IMF also announced a package in this regard. IMF helped Pakistan under the Rapid Financing Instrument, to address the economic impact of the Covid-19 shock.
State Bank of Pakistan Governor Bakir Raza gave view in a webinar that the reserves are in a better position ($10 billion) than 2018, where they stood at nearly zero.
This article is written by Jauhar Abbas, who is M.Phil in Finance, former lecturer and a Banker.