Islamabad: A big sigh of relief, as Pakistan received the Letter of Intent (LOI) from the International Monetary Fund (IMF) on Friday.
The LOI is a preliminary document that declares one party’s intention do business with another – in this case, the IMF and Pakistan.
According to media reports, the receipt of LOI signifies that Pakistan’s deal with IMF to release two tranches worth $1.17 billion under a stalled loan facility is getting closer to the finish line.
The letter will now be jointly signed by Finance Minister Miftah Ismail and Acting State Bank of Pakistan (SBP) governor Murtaza Syed.
The development came weeks after the Fund and Pakistan reached a staff-level agreement in mid-July to complete the combined 7th and 8th reviews of Pakistan’s Extended Fund Facility (EFF) with an increased size of $7 billion.
The timing of the LOI could not be any more appropriate when Pakistan’s reserves fell to an alarming level of a three-year low of $7.8 billion.
According to the weekly report on forex reserves published by the SBP, the total forex reserves held by the Central bank plunged to $555 million as of August 5, 2022, from $8.385 billion as of July 29 – an alarming 6.7pc drop.
During the same period under review, the net reserves held by the commercial banks also dropped by $92.5 million to $5.731billion from $5.823 billion.
Cumulatively, the total foreign exchange reserves dipped by $648 million to $13,561 from $14,209 during the period week ended on August 5.
The SBP, in a statement, said the reduction in the reserves of Pakistan was due to external debt payments.
“Debt repayments are expected to moderate during the next three weeks of this month,” the central bank said. “In fact, around three-fourths of debt servicing for the month of August was concentrated during the first week.”