Dollar inflows increase by $1.3b
The State Bank of Pakistan confirmed on Tuesday receiving loans worth $1.3 billion from Chinese banks this week.
In a tweet, the bank said that it has received the amount as “GOP [Government of Pakistan] loan disbursements from Chinese banks”. This brings the total amount of official inflows received since June 23, 2020, to around $3 billion.
The World Bank has, on the other hand, also approved a $500 million loan in financing for the Resilient Institutions for Sustainable Economy programme (RISE). This loan aims to help Pakistan to strengthen its revenue and expenditure (fiscal) management, promote transparency and private sector growth, and begin foundational reforms in the energy sector to switch to low-carbon energy. These reforms are important in order to increase recovery from the negative impact of the coronavirus pandemic and help in building fiscal flexibility.
Last week, the State Bank received around $1.7 billion to facilitate the country during its fight against the coronavirus pandemic. This included $725 million from the World Bank, $500 million from the Asian Development Bank, and $500 million from Asian Infrastructure Investment Bank. These funds aim to support the government of Pakistan’s efforts to strengthen its health system.
However, the SBP said on June 25 that Pakistan’s dollar reserves fell to their lowest level in seven months last week after the central bank retired foreign debt of $244.5 million.
According to the SBP’s latest data, foreign exchange reserves on June 19 were $9.9 billion. This was the first time since November 2019 that the dollar reserve in the central bank fell below $10 billion.
The SBP publishes weekly foreign exchange reserve data with a gap of a few days and the next weekly data may see its reserves increase again because of the fresh inflows.
Pakistan’s depleting dollar reserves were one of the main challenges for the present government when it came into power in August 2018. To tackle this challenge, PM Khan’s government signed a $6 billion bailout with the International Monetary Fund. The IMF programme opened more doors for Pakistan as the World Bank, ADB and AIIB also pledged support.
The dollar reserves were doubled from its lowest point in 2018 to $12 billion this year. The dollar account turned to a surplus in October last year. However, this came at an expense of choking economic growth such as reducing imports and increasing interest rates which made the borrowing expensive.
In the first nine months of the current fiscal year, the loss to our dollar account was reduced by 73% and we were in surplus in May, the latest month for which the data is available.