Daily Insights

Saudi-Fund Leads to Increase in SBP Forex Reserves

By 12/12/2021 March 25th, 2022 0 Comments

According to the State Bank of Pakistan (SBP), Foreign exchange reserves rose 16.6%, recording an increase of $2.6 billion in a week. The resource increase came primarily on the back of a $3 billion deposit by the Saudi fund for development (SFD). The Saudi money came when Pakistan was facing deterioration in the balance of payments position amid depleting foreign exchange reserves and weak inflows.

In November, the country faced its highest ever monthly trade deficit of $5.1 billion. Exports rose 34% while imports increased to 95%, forming a trade gap. The rising trade gap and decreasing reserves have forced the rupee to depreciate by 10.88%.  Due to devaluation, the demand for Pakistani currency has fallen in the international market resulting in the withdrawal of investments done by foreign investors. Saudi money has provided some support; however, the amount is insufficient. Pakistan urgently needs import reducing measures and the IMF and other lenders’ support.

Currently, the country is facing a balance of trade problems and devaluation of its currency due to high imports and low exports. Although, Pakistan can increase its exports if the country focuses more on domestic goods. However, it requires a hefty investment to produce goods rather than import from foreign countries. Pakistan should set goals to increase its exports more than imports to overcome the trade deficit and devaluation of the currency.

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