Saudi aid, growth in exports prop up the reserves
Domestic foreign exchange reserves increased by $126 million to $17.32 billion while funds held by commercial banks increased to $6.69 billion, bringing the cumulative forex reserves at $24 billion in the first week of November, according to data released by the State Bank of Pakistan or SBP on Thursday.
On October 22, foreign exchange reserves held by the SBP declined by $346 million on a weekly basis to $17.146 billion. However, Pakistan’s reserves increased by $53 million after the announcement of Saudi Arabia’s $4.2 billion support package.
Last month, Saudi Arabia announced a $4.2 billion aid package to support Pakistan. “Riyadh would make a $3 billion deposit with the State Bank of Pakistan (SBP) and offer an oil deferred payments facility of $1.2bn per annum to help the Pakistani government support its foreign currency reserves and support it in facing the impacts of the coronavirus pandemic,” the Saudi Press Agency (SPA) said.
Pakistan’s export increased by 24% in the first quarter of the current financial year from a year ago, according to the latest data released by the Pakistan Bureau of Statistics.
The value of export of services reached $1.57 billion between July and September 2021 from $1.27 billion over the corresponding period of last year which also pushed up reserves to $24 billion.
On August 27, the state bank received proceeds of IMF SDR allocation, amounting to $2.7 billion. After accounting for external debt payments, reserves increased by $2.5 billion to an all-time high of $20.1 billion.
On March 30, 2021, Pakistan borrowed $2.5 billion through Euro-bonds by offering lucrative interest rates to lenders aimed at building the foreign exchange reserves.
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.