Pakistan Forex reserves set to hit record high of over $20bln

Pakistan Forex reserves set to hit record high of over $20bln. Official foreign exchange reserves are expected to hit a record high in August, and the inflow of new funds under the Special Drawing Rights (SDR) allocations recently approved by the International Monetary Fund (IMF) is expected to help cushion losses. Covid impacts and strengthens the external position.

The State Bank of Pakistan (SBP) stated in its July monetary policy disclosed last month that Pakistan’s reserve buffer is expected to increase by another US$2.8 billion in August through the new global special drawing rights allocation planned by the International Monetary Fund. The inflow of hard currency allocated by special drawing rights will lead to an increase in foreign exchange reserves. If there is no outflow related to debt servicing, the central bank’s reserves are estimated to exceed 20 billion U.S. dollars.

Thereserve will be enough to cover imports for approximately four months. In July 2021, Pakistan had
items of goods imported, valued at 5.41 billion U.S. dollars. Imports in June 2021 are 6.3 billion U.S. dollars.
The IMF‘s Board of Governors approved the allocation of US$650 billion in Special Drawing Rights on Monday to increase global liquidity. The largest distribution of currency reserves in history will take effect on August 23, 2021. The newly established special drawing rights will be included in the IMF member countries in proportion to their existing shares in the IMF. (by Pakistan Forex reserves)

“There were three general tasks before. The most recent was during the global financial crisis in 2009, when the International Monetary Fund allocated new special drawing rights equivalent to US$250 billion to its members,” said Syed Atif Zafar, head of research at Topline Securities, in a report to clients
“SBP’s foreign exchange reserves are currently 17.8 billion U.S. dollars, and the above inflows may cause SBP’s foreign exchange reserves to exceed 20 billion U.S. dollars, the highest level in Pakistan’s history (currently high: 19.46 billion U.S. dollars in October 2016),” Zafar said Promoting the distribution of Special Drawing Rights of the International Monetary Fund can further improve the country’s balance of payments.
“I think this is very positive for a country like Pakistan, and its reserves will be increased, which will Support the overall balance of payments [balance], debt repayment and exchange rate outlook. Samiullah Tariq, head of research at Pak Kuwait Investment Company, said that as investors seek capital safety, this will also help increase investment portfolios and direct investment. (for Pakistan Forex reserves)

The rupee has been under pressure these days due to the increase in imports leading to an increase in the current account deficit. Since the beginning of this fiscal year, its exchange rate against the US dollar has depreciated by approximately 4%.

SBP predicts that due to the expected upward trend of remittances and better export prospects, the current account deficit in fiscal year 2022 will account for 23% of GDP.
Due to sufficient external financing, the country’s foreign exchange reserves may continue to improve this year, he said.
Total external financing needs are estimated at 21 billion U.S. dollars, while available financing is estimated at 24 billion U.S. dollars. (as Pakistan Forex reserves)