Pakistan has witnessed significant growth in its foreign exchange reserves held by the central bank.
According to the State Bank of Pakistan, the reserves increased by $393 million, bringing the total to $4.462 billion as of June 30th. Concurrently, the reserves of commercial banks saw an increase of $12 million, boosting the total reserves of the central bank to $9.745 billion and those of commercial banks to $5.282 billion. This improvement is attributed to the receipt of official inflows, thereby improving the nation’s economic status.
A major debt repayment event occurred in June when Pakistan paid $1.3 billion to China. However, under the prearranged terms, Beijing refinanced this amount, enabling Islamabad to enhance its dwindling foreign exchange reserves and prevent a possible default. As per the payment schedule, the Bank of China received $300 million, while the China Development Bank was paid $1 billion.
The Impact of the IMF Deal on Pakistan’s Economy
In addition to the above, the International Monetary Fund (IMF) plays a significant role in the economy’s stabilization. According to SBP Governor Jameel Ahmad, the IMF bailout is expected to bolster Pakistan’s foreign exchange reserves further. Governor Ahmad confirmed that the country has always promptly paid its debts to foreign creditors, a practice that is expected to continue and foresees improved cash flows, which will benefit the nation’s economy.
Indeed, investors’ confidence seems to be growing; the cost of insuring Pakistan’s sovereign debt against default has decreased considerably, indicating a reduced risk perception. This improvement comes as the country navigates through an IMF programme, which is believed to have practically eliminated the risk of default.
Furthermore, Pakistan has recently reached a staff-level agreement with the IMF to access $3 billion in crucial bailout funds. This much-needed financial aid comes after an extended review process for the cash-strapped economy that has been ongoing since November last year. The IMF Executive Board is set to meet on July 12, 2023, to discuss the details of a nine-month Stand-By Arrangement (SBA). The Extended Financing Facility programme signed in 2019 has expired, and the new agreement is now under an SBA.
