KARACHI: The State Bank of Pakistan’s (SBP) foreign exchange reserves hit an almost six-month high to $8.221 billion after an inflow of $464 million during the week ending on Dec 29, the central bank announced on Thursday.

However, the inflow of $853m in the preceding week helped to increase the SBP’s reserves cumulatively by $1.31bn.

Despite this massive increase in two weeks, the rupee did not show much enthusiasm and remained calm against the US dollar as it noted an increase of just five paise in the interbank market.

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The closing price of the dollar in the banking market was Rs281.67 on Thursday compared to Rs281.72 a day before.

The SBP forex reserves started increasing after the government reached a nine-month $3bn Stand-By Arrangement with the IMF. Following an immediate disbursement of the first tranche of $1.2bn, the government also succeeded in attracting inflows from Saudi Arabia and the United Arab Emirates which cumulatively increased the SBP reserves to $8.138bn in July.

The SBP took tough measures to stop dollar outflows, particularly by forcing banks to arrange dollars before opening any LCs, which reduced the import bill by 16.3pc and narrowed down the trade deficit by 34.3pc during the first half of the current fiscal year.

The SBP’s reserves are specifically used for debt servicing while the banks help to maintain the exchange rate at a certain level. Some analysts said the stability in the exchange rate helped the equity market to stage spectacular rallies in recent weeks.

The country is required to repay about $24bn during FY24. Bankers said Pakistan has successfully been fulfilling its debt repayment obligations which boosted the confidence of the financial and equity markets along with the trade and industry.

However, the SBP did not provide the details about the inflows during the last two weeks but the market sources said these inflows were from the World Bank, Asian Development Bank and Asian Infrastructure Investment Bank.

Financial market experts said the IMF’s announcement that its executive board would meet on Jan 11 and to approve the release of the second tranche of $700m this month was also encouraging for the stakeholders of the economy.

The government has exceeded the revenue collection target, given by the IMF, for the first half of the current fiscal year.

Financial experts said this achievement has made it possible for the release of the final tranche of $1.2bn in March under the SBA. It was also felt that along with the government, the financial sector believes that the successful completion of $3bn SBA would help Pakistan to get another bailout package from the IMF.

The government has already expressed its willingness to remain in the IMF programme for long-term economic stability.

The SBP reported that the country’s total foreign exchange reserves increased to $13.22bn including $4.999bn held by the commercial banks during the week.

Published in Dawn, January 5th, 2024