Pakistan's forex reserves hit 12-yr low at $3.4 bn

Pakistan's Foreign exchange reserves held by the country's central bank have decreased to $3.4 billion, hitting the lowest level since November 2001 when it had less than $3.5 billion.

Quoting the data available with the State Bank of Pakistan, a report published in the daily Express Tribune said the total liquid foreign reserves with the country as on November 22 stood at $8.7 billion.

Out of the total liquid reserves, net foreign exchange reserves held by banks other than the SBP was at$5.3 billion.

Economist Sayem Ali said the sharp decline in foreign exchange reserves was due to the hefty oil imports and external debt repayments, despite the country registering record remittances and a strong growth in exports.

He estimated that the SBP reserves would decrease to $3 billion by the end of November, the report said quoting him.

"Aggressive monetary tightening, higher import duties and cash margins on imports would have eased the pressure on foreign exchange reserves," Ali was quoted as saying in the report.

"However, the government has so far not shown any urgency to arrest the decline in reserves," he said.

The alarming decrease in foreign exchange reserves is indicative of Pakistan's widening current account deficit, which increased to $1.3 billion in the first four months of fiscal 2014 (July-October), a stark comparison to the surplus of $14 million in the corresponding period last fiscal.

As a consequence, Ali said, the Pakistani rupee is witnessing sharp depreciation.

The rupee traded at 108.55 a dollar on Thursday, which translates to a depreciation of 10.2% since June when one dollar was worth Rs 98.50.

"The IMF agreement was expected to avert a balance of payment crisis.

"But unfortunately, the upfront disbursement was only $550 million as opposed to nearly USD 3 billion upfront disbursement in the case of the 2008 loan," he said.

Hence, the foreign exchange reserves have continued to decline despite the IMF loan agreement, he added.

Pakistan has still not received the second tranche of the current IMF loan, which will be around $544 million.

Notably, the SBP-held foreign exchange reserves, which cover less than one month of imports, do not include the $396 million repayment the country made under the IMF/SBA facility on November 26.