Pakistan’s foreign exchange reserves, managed by the central bank, saw a substantial increase of $393 million, reaching $4.462 billion by the week ending June 30, according to the latest report by the State Bank of Pakistan. This surge in reserves can be attributed to the inflow of official funds. The total reserves held by the central bank rose by $405 million to $9.745 billion, while commercial banks witnessed a $12 million rise to $5.282 billion, as reported by The News.
China’s Refinancing Bolsters Pakistan’s Reserves
In the previous month, Pakistan successfully paid off $1.3 billion of its external debt to China. However, in line with the agreement between Beijing and Islamabad, China refinanced this debt to help bolster Pakistan’s dwindling foreign exchange reserves and prevent default. The payment included $300 million to the Bank of China and $1 billion to the China Development Bank, adhering to the scheduled repayment of Chinese commercial loans. China promptly responded by refinancing the $1.3 billion in maturing commercial loans, with the funds received in the previous month.
IMF Deal Expected to Boost Reserves
With the recent agreement reached between Pakistan and the International Monetary Fund (IMF), the country’s foreign exchange reserves are expected to witness further improvements. Governor Jameel Ahmad of the State Bank of Pakistan expressed optimism during an event on Tuesday, stating that the IMF bailout would greatly contribute to shoring up the country’s reserves. Pakistan has been diligent in paying its debts to foreign creditors on time, and the anticipation of improved cash flows is seen as advantageous.
Increased Investor Confidence Lowers Default Risk
The growing confidence of foreign investors in Pakistan’s economy has significantly reduced the cost of insuring the country’s sovereign debt against default. This positive development is especially notable in light of the ongoing IMF program. Investors are increasingly convinced that Pakistan’s default risk has been eliminated, at least for the duration of its participation in the IMF program.
IMF Approves $3 Billion Bailout Funds
After an extensive review process that commenced in November of the previous year, Pakistan recently reached a staff-level agreement with the IMF. The agreement paves the way for the release of $3 billion in critical bailout funds to support the cash-strapped economy. The Extended Financing Facility program, initially signed in 2019, expired on Friday, leading to the current stand-by arrangement (SBA) agreement. The IMF’s Executive Board is scheduled to convene on July 12, 2023, to discuss further details regarding the nine-month SBA.
In conclusion, Pakistan’s foreign exchange reserves have experienced a significant boost, reaching over $9.7 billion, largely driven by the inflow of official funds and the refinancing of Chinese debt. The IMF agreement and increased investor confidence have further strengthened the country’s economic prospects. As Pakistan continues to manage its debts diligently and receives critical financial support, the outlook for its foreign exchange reserves remains positive.