SBP Reserves Hold Ground After Five Weeks of Decline

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After weeks of continuous decline, the foreign exchange reserves held by the central bank remained largely unchanged on a weekly basis, according to data released by the State Bank of Pakistan (SBP) on Thursday.

On October 14, the foreign currency reserves held by the SBP were recorded at $7.597 billion, compared to $7.596 billion on October 7. The minor change means that reserves remain at their lowest level since July 2019.

Overall liquid foreign currency reserves held by the country, including net reserves held by banks other than the SBP, stood at $13.25 billion. Net reserves held by banks stood at $5.653 billion, registering an increase of $4 million.

According to Arif Habib Limited, the current level of reserves is enough for an import cover of just 1.1 months.

Pakistan has been struggling with its finances and the massive cost of relief and rehabilitation has raised fears that the country could default. This has led to Finance Minister Ishaq Dar repeatedly assuring that the country would not default, with the latest coming on Wednesday when the finance chief said that “there was no question of Pakistan going into default, as the risk has been averted.”

Pakistan is currently in an International Monetary Fund (IMF) programme and is set to receive around $4 billion in post-flood aid and loans from institutions such as the World Bank, Asian Development Bank, and United Nations.

On Wednesday, JPMorgan’s analysts wrote in a note that “Pakistan’s debt and fiscal dynamics flag rising solvency concerns.”

“Political/fiscal, flood-related external risks, and the possibility of a debt moratorium – and their implications on the IMF programme as well as FX liquidity – likely justify current sovereign bond prices,” the note said addressing the slump in Pakistan’s bonds.

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