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Forex reserves cross $20bn mark for the first in Pakistan

IMF’s SDR allocation pushed the reserves to historic high

SAMAA | - Posted: Sep 2, 2021 | Last Updated: 3 months ago
SAMAA |
Posted: Sep 2, 2021 | Last Updated: 3 months ago

Pakistan’s foreign exchange reserves surged to a historic high of $20.15 billion after the State Bank received the International Monetary Fund’s Special Drawing Rights (SDR) allocation, amounting to $2.75 billion.

SDR are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund (IMF).

Total liquid foreign reserves, which are foreign exchange reserves held by the State Bank and domestic commercial banks, had reached $27.23 billion by August 27.

“SBP received proceeds of IMF SDR allocation, amounting to $2.75 billion. After accounting for external debt payments, reserves increased by $2.57 billion to $20.15 billion,” the State Bank said in a media release.

The State Bank’s reserves have never crossed $20 billion mark. The State Bank has been compiling data since 1998 and according to a source privy to the matter, foreign exchange reserves can’t be above the current level before 1998 and it can safely be assumed that at present, forex reserves are at their highest level.   

The State Bank announces the level of foreign exchange reserves it maintains with a lag of a week.

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 drawing 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 are considered to help in stabilizing the dollar rate. An increase in reserves tends to stabilize the dollar rate, which means the rupee tends to become stable.

Related: Depreciating rupee against dollar didn’t increase exports for Pakistan: study

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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