As per the data released by the central bank, net foreign exchange reserves alleged by the State Bank of Pakistan (SBP) decreased by a massive $1.712 billion to $10.362 billion over the week ending May 29, 2020.
According to some reports, this $1,712 billion drop in reserves is the biggest-ever weekly drop recorded in a decade. It also brings down SBP net reserves to the lowest level since December 6, 2019, the week ended. Commercial banks’ net foreign reserves rose slightly, from $6.52 billion to $6.55 billion.
The country’s total liquid foreign reserves fell substantially from $18,597 billion in the week ending May 21, to $16.92 billion over the week under review.
Others aren’t as optimistic. The combined pressure of a decline in exports and remittances due to the COVID-19 pandemic. And an increase in external debt repayments like those of May might see net SBP reserves fall below double digits later this year.
FX reserves constitute a significant macroeconomic measure used to determine an economy’s fitness. Net reserves in Pakistan are mainly built up by foreign loans. With insufficient foreign currency inflow from exports and remittances, it is necessary to use the same reserves to repay the loans.
Also, the same reserves are used for controlling the exchange rate. Low FX reserves concern the SBP and the government because they limit their ability to control the exchange rate and are unable to meet their debt obligations in a worst-case scenario, that is, default.
