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Pakistan bond auction pushes its reserves to a four-year high

SBP received $2.5 billion from Euro Bonds

SAMAA | - Posted: Apr 16, 2021 | Last Updated: 9 months ago
Posted: Apr 16, 2021 | Last Updated: 9 months ago

Photo: AFP

Pakistan’s foreign exchange reserves jumped to $16.1 billion for the first time in nearly four years when the week ended on April 9, according to information shared by the State Bank of Pakistan.

The last time Pakistan’s foreign exchange reserves were at this level was on July 7, 2017.

Pakistan’s total liquid foreign reserves, foreign exchange held by State Bank plus commercial banks of the country, also crossed the $23 billion mark. The State Bank shared the foreign exchange reserves data by a week’s delay.

The State Bank attributed the increase in the reserves to the $2.5 billion proceeds from the issuance of Pakistan Euro Bonds.

Pakistan’s depleting dollar reserves were one of the main challenges for the PTI when it came into power in August 2018. Within its first six months, the PTI government saw dollar reserves down to a level that was barely enough to pay for two months of imports.

In order to be in the comfort zone, it is recommended that Pakistan has enough reserves to cover at least three months of import payments. However, Pakistan fell short of this level when its reserves slipped below $6 billion in 2019 and was on the verge of a sovereign default.

To tackle this challenge, Prime Minister Imran Khan’s government also signed a $6 billion bailout with the International Monetary Fund (IMF), which was a topic of national debate. Since the agreement with the IMF, the country has secured funding from multilateral donors like the World Bank and Asian Development Bank, which helped build its reserves.

Higher foreign exchange reserves also stabilize the dollar rate and a persistent increase in reserves tends to bring the dollar rate down in the country, which means the rupee becomes stronger.

The dollar rate, on the basis of which Pakistan trades with the rest of the world, also affects the prices of consumer goods or inflation in the country. The increasing value of the dollar in the country increases inflation, while decreasing the dollar rate tends to lower inflation.

Following the Pakistan Euro Bond proceeds, the foreign exchange reserves are at a level where the country can cover at least three months of import bills.  

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