Forex reserves plunge $1.5 billion in March

The country's total liquid foreign exchange reserves posted a notable decline of $1.5 billion during March, mainly due to massive outflow of hot money.
According to the State Bank of Pakistan's statistics, total liquid foreign exchange reserves declined by $1.48 billion in just one month. The country's total liquid foreign exchange reserves stood at $17.388 billion as on March 27, 2020 down from $18.869 billion on February 28, 2020.
The entire drop was observed in the reserves held by the State Bank, mainly due to external debt payment and some other official payments. The SBP's reserves are on decline for the last three weeks due to massive outflow of foreign investment in the government debt securities.
Since July last year, foreign investors were heavily investing in the government's short-term debt papers because of market based exchange rate policy and attractive margins followed by tight monetary policy.
However, foreign investors have divested some $2 billion from the investment in Pakistan Market Treasury Bills (T-Bills) during March 2020 due to corona virus speared and some decline in key interest rate. State Bank had cut key interest rate by 225 basis points in March to support the economy, which is facing slowdown after the Corona virus pandemic.
Because of hot money outflow, SBP's reserves fell sharply $1.6 billion to $11.186 billion end of March versus $12.757 billion as on February 28, 2020. SBP also said that the current decline in reserves is attributed to government external debt and other official payments.
Analysts are expecting further decline in the SBP's reserves in coming months as divestment of investment by foreign investors from the government debt securities is gradually accelerating.
Reserves held by banks posted some surge during the period under review. Reserves held by banks slightly surged to $6.2 billion as on March 28, 2020 compared $6.11 billion as on Feb 28, 2020, showing an increase of $90 million.
According to weekly forex report, during the last week ended March 28, 2020, SBP reserves were dropped by $804 million to $11.18 billion. This decline is attributed primarily to government external debt payments that amounted to $441 million, and other official payments, the SBP maintained.
During the last week, reserves held by banks slightly increased from $6.116 billion to $6.2 billion.