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Foreign exchange reserves are at an all-time high in Pakistan

State Bank reserves jump to four-and-a-half year high

SAMAA | - Posted: Jul 24, 2021 | Last Updated: 2 months ago
Posted: Jul 24, 2021 | Last Updated: 2 months ago

Photo: AFP

The total foreign exchange reserves crossed $25 billion for the first time in Pakistan, according to the data available on the State Bank’s website.

The State Bank has annual data from the financial year 1998-99 when the total foreign exchange reserves stood at $2.29 billion. According to the available data, the total foreign exchange reserves never crossed $25 billion before.

A source privy to the matter said that foreign exchange reserves were too low when the compilation of data begun for foreign exchange reserves to above the present level. “One can safely assume it was never above the present level in the years for which data was not compiled,” the source said.

According to a State Bank’s press release, the total foreign reserves held by Pakistan stood at $25.13 billion after the week ended on July 16. Meanwhile, foreign exchange reserves held by the State Bank increased to 18.05 billion. The last time State Bank reserves were at this level was on January 20, 2017.

During the week, the State Bank received proceeds of $1.04 billion against Pakistan Euro Bonds. After accounting for external debt repayments, reserves increased by $845 million.

The State Bank announces its foreign exchange reserves within a lag of a week. When foreign exchange reserves held by the central bank and commercial banks are clubbed together, they are called the total foreign exchange reserves of the country.

When the PTI government came to power, one of its biggest challenges was the country’s depleting dollar reserves. Within the first six months, the government saw dollar reserves down to a level that was barely enough to pay for two months of imports.

To keep its position in the comfort zone, Pakistan was recommended to keep sufficient reserves to cover at least three months of import payments. The country, however, fell short 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 signed a $6 billion bailout agreement with the International Monetary Fund, which became a topic of national debate. After this, the country secured funding from multilateral donors such as the World Bank and Asian Development Bank. It helped Pakistan build its reserves.

Higher foreign exchange reserves play a key role in stabilising the dollar rate. A persistent increase in reserves tends to bring the dollar rate down, 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.

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