Foreign exchange: State Bank of Pakistan's reserves increase to 2.5-year high

KARACHI: Pakistan's foreign exchange reserves are the highest they have been in more than two-and-a-half years, the State Bank said on Thursday.

Analysts attributed the increase in the reserves to $12.93 billion as of November 13, 2020 to better balance of payments, inpouring dollars and a new exchange rate regime.

The SBP’s reserves increased by $191 million on a weekly basis and are sufficient to cover three months of imports.

Pakistan's liquid foreign reserves are now $20.08 billion. They were $19.9 billion last week.

Commercial banks witnessed a fall in reserves to $7.15 billion from $7.16 billion.

Read more: Pakistan saw negative economic growth in FY 20 for the first time after 1952, says SBP

The SBP did not provide a reason for the increase in reserves. But analysts say its because of the improved balance of payments, a current account surplus, dollar inflows from multilateral sources and a market-based exchange rate regime.

“Reserves accumulation is good, but Pakistan needs them to be even higher than this to absorb external account shocks and manage its currency,” said Topline Securities CEO Mohammed Sohail.

Pakistan has to repay around $2 billion in loans and return potential loans taken to bolster reserves, say some analysts. These repayment outflows could put pressure on the foreign exchange reserves and the rupee.

SBP's liquid forex reserves recovered to $12.1 billion in FY2020 after dropping for three consecutive years, the central bank's latest annual report said. The reserves were at $7.3 billion in FY2019.

This recovery was because of a significant reduction in Pakistan's current account deficit and multilateral financing, an SBP report had said.