The International Monetary Fund’s (IMF) board of governors approved a $650 billion increase in the institution’s lending capacity on Monday, the final step in approving a plan to enhance help to the world’s poorest countries.
On August 23, the program authorized by the IMF’s executive board in mid-July will go into effect. According to Fitch Ratings, Pakistan’s reserves could be boosted by $2.8 billion due to the IMF’s latest projected SDR distribution.
Fitch Ratings said in its ‘External Liquidity Strains Ease in Some APAC Frontier Economies’ research that Pakistan has benefited from the IMF’s Extended Fund Facility disbursement and, more recently, Saudi Arabia’s approval in June to an oil support package.
“Most Asia-Pacific frontier economies, including Bangladesh (BB-/Stable), Laos, the Maldives (CCC), Mongolia (B/Stable), Pakistan (B-/Stable), and Sri Lanka, have seen official reserves rise in the last six months. The only exception is Sri Lanka, where reserves are expected to decline to $4 billion by the end of May 2021.”
According to the most recent data issued by Pakistan’s central bank on July 29, the country’s foreign exchange reserves are now worth $24.88 billion. Net foreign currency reserves held by commercial banks totaled $7.046 billion, while reserves held by the SBP totaled $17.83 billion.
The dollar, the euro, the pound, the renminbi or yuan, and the yen all have a value based on a basket of five main international currencies.
SDRs can be used as a reserve currency to keep the value of a country’s native currency stable, or they can be convertible into stronger currencies to fund investments. Impoverished countries desire to obtain hard currencies without having to pay high-interest rates.
Meanwhile, according to the lender, newly issued SDRs would be distributed to members in proportion to their IMF quotas.
In a statement, Nadia Daar, the president of the Washington-based NGO, claimed that the “new SDRs will offer much-needed cash to struggling poor nations without adding to their unsustainable debt burdens.” She believes it is “unfathomable” that affluent countries would fail to reallocate a significant chunk of their SDRs, at least $100 billion, as promised by the G7 in a mid-June conference.
