SBP Reserves Decline, Economic Challenges Ahead - Capital TV

May 28, 2023


SBP Reserves Decline, Economic Challenges Ahead

Anum Razzaque

KARACHI: The foreign exchange reserves of the State Bank of Pakistan (SBP) dipped to $4.2 billion, according to data issued by the central bank on Thursday, which is barely enough to cover a month’s worth of controlled imports.

By May 19, SBP’s reserves had experienced a fresh decline of $119 million, while the bank’s reserves decreased by $87.5 million to $5.54 billion.

As a result, the overall foreign exchange reserves held by the country decreased by $206 million, reaching $9.73 billion.

Currency dealers stated that the outflow of each dollar was crucial for the economy and that it had significantly impacted the exchange rate.

Read more: SBP Foreign Exchange Reserves Dip by $36 Million

This recent decline in dollar holdings occurred at a time when import control measures were imposed by imposing strict conditions on the opening of letters of credit.

on the other hand, financial experts believe that these stringent controls have produced two significant results: importers have started buying dollars from illegal markets, and there has been a large-scale smuggling of goods.

The markets are now flooded with smuggled Iranian and Chinese goods, along with ready-made textile products from Bangladesh.

The smuggling of goods and the purchase of dollars from the illegal market by importers have created a significant disparity in the price of the dollar in the open and interbank markets.

Also check: State Bank of Pakistan’s Foreign Exchange Reserves Surge by Over $500 Million

This difference has exceeded Rs22 per dollar, attracting overseas Pakistanis to avoid using legal channels and instead benefit from the large difference.

Meanwhile, overseas remittances have declined by 29 percent, indicating a shift of funds from legal to illegal channels.

However, if this situation persists, it may force the SBP to devalue the rupee against the US dollar, further reducing the inflow.

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