On back of another Chinese loan, SBP-held forex reserves increase $487mn, now stand at $4.3bn

On the back of another loan from China, foreign exchange reserves held by the State Bank of Pakistan (SBP) increased $487 million, clocking in at $4.3 billion as of March 3, data released on Thursday showed. This is the fourth successive increase in central bank-held reserves on a weekly basis, but the overall number still stands at a critical level at less than a month of import cover.

Total liquid foreign reserves held by the country stood at $9.75 billion. Net foreign reserves held by commercial banks clocked in at $5.45 billion.

“During the week ended on Mar 3, 2023, SBP’s reserves increased by $487 million to $4.3 billion, due to receipt of $500 million as GoP commercial loan from China,” said the SBP.

Last week, Finance Minister Ishaq Dar had announced the receipt of $500 million from the Industrial and Commercial Bank of China (ICBC) and stated that an additional tranche of $500 million will be received soon as well.

Dar had said the formalities were complete and ICBC approved the rollover of a combined $1.3 billion facility that had been repaid by Pakistan in recent months.

Last week, foreign exchange reserves held by the SBP increased $556 million to $3.81 billion on the back of a commercial loan from the Chinese Development Bank.

The central bank reserves, which stood at nearly $18 billion at the start of 2022 but have undergone significant depletion in recent months, underscore the urgent need for Pakistan to complete the next review of the International Monetary Fund (IMF) programme.

The programme has been stalled since last year, but Islamabad remains engaged with the IMF for its revival.

Last month, the IMF mission left Islamabad without inking the staff-level agreement, and instead, issued a short four-paragraph statement, stressing on timely completion of prior conditions to revive the bailout that has been stalled since last year.

Meanwhile, on Thursday, Finance Minister Ishaq Dar said once again that a staff-level agreement with the IMF is expected to be inked in the next few days.

“We have been in the process of the ninth review,” he said. “I think it has taken longer than it should have in my opinion, however, we seem to be very close to signing the staff-level agreement hopefully in the next few days,” said Dar.

The delay in agreement with IMF took a toll on the rupee that fell Rs3.18 or 1.13% to close at 282.3 in the inter-bank market on Thursday.

Shortage of foreign currency reserves has put pressure on the economy that relies heavily on imports to run its engines. While the SBP has put some curbs on inward shipments, reducing the current account deficit in the process, many businesses have been forced to either shut down or scale back operations as policymakers scramble to arrange dollar inflow.