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Reserves to rise, Current Account Deficit to be manageable: Governor SBP

August 13, 2021

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The Governor of the State Bank of Pakistan (SBP) Dr. Reza Baqir has said that the revised Special Drawing Rights (SDR) of the International Monetary Fund (IMF) will help increase net international reserves of the country.

International reserves (shares) of a strategic reserve are defined as the dollar value of the difference between the total available international reserves and the liabilities associated with the reserve, which are measured at current exchange rates in accordance with the International Monetary Fund.

Dr. Reza Baqir was addressing a press conference in Islamabad where he stated that the recently approved allocation of SDRs by the International Monetary Fund could do the best for Pakistan, which is aiming for higher economic growth this fiscal year.

“The ceiling on imports will also increase with this new allocation,” Baqir said, adding that foreign exchange reserves will reach historic levels with the new SDR allocation.

Pakistan’s foreign exchange reserves touched $ 24.6 billion, out of which the central bank’s funds are just over $ 17.6 billion. SBP has recently cited Paying off external debt and buying of the Covid-19 vaccine as the reason for the weekly decline in foreign exchange reserves, which came down after briefly touching $25bn.

The Foreign reserves are an important buffer for Pakistan’s economic growth, which needs dollar reserves to pay for imports. As the government strives for faster economic growth, the pressure on dollar reserves is likely to increase. This will lead to an increase in the current account deficit, which will eventually weaken the SBP’s foreign exchange reserves.

The current account deficit has widened in recent months, exacerbating currency pressures. However, Governor SBP expressed that the current account deficit is expected to remain at 2-3% of GDP this fiscal year, which is manageable.