The State Bank of Pakistan’s (SBP) foreign exchange reserves decreased by $134 million to $7.8 billion during the week ending November 18.
As the dollar is rising on a daily basis on the interbank market, the exchange rate is negatively impacted by the deficient reserves position. It has increased by 50 pence during the past three business days.
However, the interbank rate offered by the SBP is much lower than the rate offered by exchange businesses, as the latter daily surrender dollars to banks.
Thursday, the Exchange Companies Association of Pakistan (ECAP) quoted a dollar interbank rate of Rs225, while the central bank reported a closing price of Rs223.92.
The declining SBP reserves are the primary cause of the local currency’s weakness against the dollar. The duration of the current political turmoil in the country is unpredictable to currency merchants.
The State Bank’s foreign exchange reserves stood at almost $8 billion for more than a month, although they will decrease with the payment of $1 billion due on December 5 due to the maturity of Sukuk bonds.
Due to the absence of incoming funds, the market anticipates that the dollar would rise following the payment of $1 billion.
The government is negotiating with the IMF for the release of the next tranche, but is encountering obstacles, particularly on the home economic front.
As a result of a decline in tax collections, the government is under increasing pressure to increase tax rates in order to generate more money, as the IMF-prescribed fiscal imbalance is widening.
During the first four months of FY23, the primary inflation rate (CPI) has already surpassed 26%, and further taxes would make life unpleasant for the poor and middle class. 50 percent of Pakistanis are reported to be poor.
The State Bank said that the nation’s total reserves decreased by $151 million to $13.6 billion on November 18, while the reserves held by commercial banks were at $5.82 billion. The State Bank said that central bank reserves decreased as a result of external debt repayments. The SBP reserves decreased to $7.8 billion from $8.4 billion in July.