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As the SBP Forex Reserves Increase, the Rupee Falls

Pakistan’s foreign exchange reserves rise to $4.3 Billion with Chinese help, but rupee falls against the dollar

The State Bank of Pakistan (SBP) has received a boost to its foreign exchange reserves, as China sent an inflow of $500 million. According to the SBP, the total was $4.3 billion for the week ending March 3.

The dollar’s increase of more than Rs3 in the interbank market on Thursday, however, resulted in a negative reaction in the currency market. Currently, the nation has $9.754 billion in total foreign reserves.

The SBP’s reserves have sharply decreased over the past year, going from over $17 billion in February 2022 to less than $3 billion in early February 2023. Since no other nation has offered to help Pakistan increase its reserves, the recent Chinese aid of $1.2 billion has led to an increase in reserves to $4.3 billion. The IMF has not yet responded favourably to the government’s efforts to restart a stalled bailout package.

The dollar increased to Rs 282.3 on the interbank market and to Rs284 on the open market. The SBP reported that the rupee had dropped for the second day in a row, closing at 282.30 and losing 1.13% to the dollar. It is unclear whether the inflows from China or the IMF will improve the rupee’s value.

The IMF is not yet interested in disbursing the $1.1 billion tranche, the US spokesperson advised the Pakistani government, so the government should continue talks with the IMF.

Pakistan has been asked by the IMF to secure $7 billion for debt repayment during the current fiscal year. Ishaq Dar, the country’s finance minister, said on Thursday that a staff-level agreement with the IMF was “very close” to being reached.

The high demand for dollars has caused the rupee to depreciate, according to Malik Bostan, chairman of the Exchange Companies Association of Pakistan. Even though the amount of dollars being smuggled has significantly decreased, Pakistani importers still bring in products duty-free for Afghanistan.

There are plenty of stores in Pakistan that sell these imported goods. Despite the fact that many shops might not carry essentials like wheat flour, they do carry a variety of imported goods. As a result, many importers who are unable to get the SBP’s approval to open their letters of credit purchase dollars on the black market at much higher rates.

Despite the high cost of imports, importers do not pay duty because the goods are brought into Afghanistan, where there are no duty fees, and returned to Pakistan across the two nations’ porous border.

Written by Imad Khan

Imad Khan has the skills and experience to deliver top-notch content that informs, engages, and inspires. He oftens explores nature in his free time.