Foreign Exchange Reserves: IMF’s 17.7 billion SDR support masks extent of slowdown in reserves pile-up in FY’22

India added $47.5 billion to the foreign exchange reserves last fiscal, down nearly half the previous year. But a drill down of the data reveals that nearly $26 billion of those incremental reserves were due to the sanction of Special Drawing Rights by the IMF and revaluation of gold reserves. Net of valuation losses only $ 4 billion worth hard foreign currency assets were added to the forex kitty.

A $17.7 billion addition to the reserves was provided by the IMF in terms of SDR allocation and close to $9 billion addition to the value of gold. Even excluding the SDR gains- which is a one-off ($17.4billion) and changes in gold $8.67billion, the gains in foreign currency assets stand at $20bn.

After factoring valuation losses of $17.2 billion, foreign exchange reserves increased by $ 30.3 billion during 2021-22 as compared with $ 99.2 billion during 2020-21, according to the data on variation in Foreign Exchange Reserves released by the Reserve Bank of India.

An analysis of data in RBI‘s Half Yearly Report on Management of Foreign Exchange Reserves, of the $30.3 billion addition to reserves in FY’22 to $ 607.3 billion, only $ 4 billion was on account accretion to hard currencies in reserves, $8.7 billion due to revaluation in gold and $17.4 billion due to rise in SDRs.


” So one way to interpret the relative moving parts is to see that gold reserve accretion has been high, so positive valuation effects were seen there, but then FCA related valuation losses are much higher than $ 17bn, due to weaker euro, JPY and GBP in the last 12 months” ” said Rahul Bajoria, chief India economist at Barclays Capital..

Movements in the foreign currency assets occur mainly on account of purchase and sale of foreign exchange by the RBI, income arising out of the deployment of the foreign exchange reserves, external aid receipts of the Central Government and changes on account of revaluation of the assets.

Data indicates that without the IMF support, our external sector is strained. “With the current account changing to deficit balance of payments pressurized,” said Madan Sabnavis, chief economist at

.” FDI has retained position while FPI is negative. Therefore there has been a weakening of the external account”.

The slowdown in the pile-up in reserves assumes significance as foreign investment is slowing as central banks of advanced economies raise rates to fight rising inflation and a prospect of wider current account deficit would put further pressure on the reserves and rupee. Estimates are that the current account deficit may widen further to 3.0% of GDP in FY23 or even higher from 1.2% in FY22 on higher cruf. ” Deterioration in CAD is likely to be on account of higher commodity prices (we expect crude oil prices to average at $ 105 per barrel in FY’23) and a slowdown in global growth. A global growth slowdown is likely to weigh both on export growth and services receipts. On the other hand, we expect transfers to hold up in FY’23” said a report by


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