Pakistan’s FX Reserves Decline by $19M to $16.6B
Overview of Foreign Reserves
KARACHI: Pakistan’s total liquid foreign reserves saw a minor decline of $19 million, bringing the total to $16.6 billion as of December 6, 2024. These reserves encompass $12.05 billion held by the State Bank of Pakistan (SBP) and $4.55 billion by commercial banks. Despite the slight dip, SBP’s reserves have risen to their highest level since March 2022, supported by inflows from the Asian Development Bank (ADB).
SBP Reserves Surge
The SBP’s reserves increased by $13 million during the week, thanks to over $500 million in inflows from the ADB. This boost not only pushed the reserves above the $12 billion mark but also elevated the import cover to 2.15 months, marking the highest level in nearly three years. Analysts attribute this rise to a current account surplus and enhanced liquidity in the interbank market, reflecting the government’s fiscal adjustments and external financial support.
Commercial Banks’ Reserves Decline
Conversely, reserves held by commercial banks saw a decline of $33 million, settling at $4.55 billion. This decline highlights ongoing challenges in private-sector liquidity. Tahir Abbas, research head at Arif Habib Limited (AHL), noted the slight dip in commercial banks’ reserves but emphasized the overall stability in Pakistan’s foreign exchange position.
Import Cover and Economic Stability
The import cover, a vital measure of economic stability, remains steady at 2.15 months, based on average imports over the last three months. This is a significant improvement from earlier in the year when the import cover dipped to 1.66 months in June 2024. Shankar Talreja, Director of Research at TopLine Securities, noted that the SBP reserves have been on a rising trend for the past 7-8 weeks, owing to a current account surplus and higher interbank market liquidity.
Gold Prices on the Rise
Gold prices in Pakistan have been increasing for the fourth consecutive day. On Thursday, the price of gold per tola reached Rs282,800, following a single-day increase of Rs2,300. The price for 10 grams rose by Rs1,971 to Rs242,455, according to the All-Pakistan Gems and Jewellers Sarafa Association (APGJSA). This trend mirrors international gold prices, which also saw gains, reaching $2,716 per ounce before a slight dip due to profit-taking by investors.
Rupee Experiences Minor Depreciation
The Pakistani rupee saw a slight depreciation against the US dollar, dropping by 0.02% in the interbank market on Thursday. The currency settled at 278.23, marking a loss of Re0.06 compared to the previous day’s closing of 278.17, as per SBP data.
Detailed Analysis of Reserve Fluctuations
The fluctuation in Pakistan’s foreign reserves highlights the delicate balance between fiscal management and external financial support. The rise in SBP reserves reflects successful government policies and international aid, while the decline in commercial bank reserves underscores private-sector challenges. The import cover improvement is a positive indicator of economic stability, crucial for sustaining growth and development.
Factors Influencing Gold Prices
Gold prices have been on an upward trajectory, influenced by both domestic and international market dynamics. The consistent rise in gold prices domestically, coupled with similar trends globally, indicates investor confidence in gold as a safe haven amid economic uncertainties. The temporary dip in international gold prices due to profit-taking is a typical market response, with investors capitalizing on high prices before re-entering at lower levels.
Currency Market Dynamics
The slight dip in the rupee’s value against the US dollar is a reflection of the ongoing economic adjustments and market conditions. While the depreciation is minor, it highlights the need for continuous monitoring and strategic fiscal policies to maintain currency stability.
Conclusion
Despite the minor decline in overall reserves, Pakistan’s foreign exchange position shows signs of stabilization compared to the low levels experienced in mid-2022. Economic analysts emphasize the importance of sustainable policies to maintain reserve levels and further enhance the country’s import cover. The consistent rise in gold prices and minor fluctuations in the rupee’s value are indicative of the broader economic trends and market responses.
FAQs
1. Why did Pakistan’s foreign reserves decline by $19 million? The decline is primarily due to a $33 million decrease in reserves held by commercial banks, despite a $13 million increase in SBP reserves.
2. What caused the increase in SBP reserves? The increase was driven by over $500 million in inflows from the Asian Development Bank (ADB), which boosted the reserves above $12 billion.
3. How is the import cover calculated? The import cover is calculated based on the average imports over the last three months, providing a measure of economic stability.
4. Why are gold prices rising in Pakistan? Gold prices are rising due to both domestic demand and international market trends, with investors viewing gold as a safe haven amid economic uncertainties.
5. What does the slight depreciation of the rupee indicate? The minor depreciation reflects ongoing economic adjustments and market conditions, highlighting the need for strategic fiscal policies to maintain currency stability
