The central bank’s reserves have jumped to $8.8b
The State Bank received $1 billion from Saudi Arabia on Friday, the last installment of the aid package Riyadh had announced last October.
This comes a day after the UAE transferred its first installment, $1 billion, of the $3 billion it had pledged in support for Pakistan’s depleting foreign exchange reserves. Following these transfers, the central bank’s reserves have jumped to a five-month high of $8.8 billion.
Pakistan’s falling foreign exchange reserves was one of the biggest challenges for Imran Khan’s government since it took charge in August last year. The country hardly had enough dollars to pay for two months of imports and comply with its foreign loan obligations. A large trade gap, where imports were twice as much of our exports, only added to the problem.
Last year, the Prime Minister visited friendly countries to secure aid packages and succeeded in his visit to Saudi Arabia and the UAE, both of whom pledged $3 billion each. The Saudi government also extended an oil credit of $3 billion per year for three years. According to some reports, the Chinese have agreed to provide at least $1 billion to help Islamabad shore up its foreign exchange reserves to a sustainable level and avoid default on payments.
Last year was particularly volatile for foreign exchange market since the dollar appreciated more than 25% against the rupee and witnessed two of its biggest jumps in a span of one-and-a-half months. A delay in talks with the International Monetary Fund to secure an immediate bailout package kept local currency under pressure, and it fell to its lowest level ever of Rs143.5 to a dollar in December. However, the green back fell below Rs140 and has been stable since two months.
With our dollar reserves hovering at a five-month high and another $2 billion expected from the UAE, the dollar is likely to remain stable. However, a recent report by Moody’s warned that our dollar reserves would remain under pressure this year because our external financial needs (imports and loan payments) are far greater than the dollars parked in the central bank’s coffers.