The rising current account deficit and foreign debt payments ate away some $3 billion from the State Bank's forex reserves during the current fiscal year. Sources in banking sector told Business Recorder on Friday that it is likely that in near future, the country's forex reserves may further decline due to fresh debt payments in the fourth quarter of current fiscal year.
They said rising current account deficit is primary while debt servicing is secondary reason viz depleting foreign reserves as currently the country is dependent on home remittances sent by overseas Pakistan. Remaining foreign inflows such as Coalition Support Fund and loan tranches from the IMF have been almost standstill.
The country's current account balance had posted a deficit of over $3.089 billion during first half (July-March) of current fiscal year compared with only $10 million in same period of last fiscal year, depicting an increase of $3.079 billion. According to the State Bank of Pakistan's fresh statistics about $3 billion fall has been registered in SBP's reserves during the first nine months (July-March) of current fiscal year. The reserves held by SBP fell to $11.835 billion as on March 30, 2012 compared with $14.784 billion on July 2, 2011, depicting a decline of $2.95 billion.
However, the reserves held by banks witnessed some improvement and support to maintain the country's liquid foreign exchange reserves at a reasonable level. Banks' reserves have surged by 36 percent or $1.256 billion to $4.716 billion in March 2012 up from $3.460 billion in June 2011. The country's cumulative (comprising SBP and banks) forex reserves posted a decline of $1.693 billion during July-March of current fiscal year. The country's total liquid forex reserves declined to $16.550 billion in March 2012 from $18.244 billion in June 2011.
During the third quarter (January-March) a decline of $1 billion was witnessed in the reserves held by SBP. This massive decline is due to first payment of Stand-By Arrangement (SBA) of IMF. Pakistan paid $399 million on account of SBA's first instalment to the IMF as on February 2012.
SBA, which was obtained to build forex reserves, is now depleting the country's reserves as the repayment has started in third quarter of fiscal year 2012. In November 2009, Pakistan rejoined the IMF and got some $11.3 billion loan due to high current account deficit and slow foreign inflows. However, the IMF programme was not completed due to some dispute on tax reforms and IMF stopped payment of SBA tranches.
Pakistan quit the programme in September 2011 after receiving $7.6 billion from the IMF. "The stoppage of tranches have compelled the central bank to utilise reserves to meet the current account deficit and make foreign debt payments," economist said and added that massive rise in the country's current account deficit and slow foreign inflows clearly reflect that current decline in the reserves have been driven by the widening current account deficit and foreign payments.
They said slow foreign inflows are also another cause of decline in forex reserves as this year the home remittances are main inflows from abroad. Overseas Pakistanis remitted an amount of $9.735 billion in the first nine months (July 2011-March 2012) of FY12, showing an impressive growth of 21.45 percent or $1.719 billion when compared with $8.016 billion received during the same period of the last fiscal year (July-March 2011).
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