Pakistan’s foreign reserves reach to lowest level since Dec 2019
As a result of rising current and trade deficits, higher foreign debt payments, and depleted dollar inflows, Pakistan’s foreign exchange reserves fell to their lowest level since December 2019.
According to data released by the State Bank of Pakistan (SBP), inflows reached $16.4 billion in the week ending May 6, versus $16.5 billion the previous week.
The country’s reserves fell by $178 million or 1.1% week-on-week to $16.376 billion, according to central bank data. The central bank’s reserves fell to their lowest level in 23 months.
Commercial banks’ reserves, however, increased to $6.067 billion of $6.054 billion. The surge in double deficits (current account and trade), the lack of foreign currency inflows, and the increase in foreign debt service have led to the rapid depletion of foreign reserves.
Lower reserves put pressure on the currency, which dropped to its all-time low of 191.77 Rs per dollar on the interbank market.
The delay in the resumption of the International Monetary Fund (IMF) bail-out along with the lack of finance commitments from friendly countries increases the pressure on foreign exchange reserves and local unity.
Pakistan-Kuwait Investment Company Chief Researcher Samiullah Tariq stated that the decline in reserves is nominal. “However, in terms of import cover, we are under three months, and we need to go into the IMF program to stabilize reserves.”
Prime Minister Shehbaz Sharif, who assumed his position last month after ousting former Prime Minister Imran Khan, is facing a battle to secure the resumption of the IMF bailout, as it is a precondition for additional financial support from other bilateral and multilateral creditors.
The country needs fast foreign exchange inflows to cover imports and debt payments against a backdrop of declining foreign reserves. However, the current government will have to reduce the costly energy subsidies that were brought in by the then-Khan government.
Oil and electricity prices must be increased to obtain IMF approval for the next loan.
Sharif travelled to Saudi Arabia and the United Arab Emirates last week but failed to secure immediate funding pledges. The $2.3 billion turnovers in Chinese commercial loans has also not taken place.
Pakistan and the Fund are expected to initiate discussions on 18 May in Doha, It would depend on eliminating fuel subsidies to take over the program and extend it to one year and $8 billion in size.
The government says that the Prime Minister’s visit to Saudi Arabia was a success, and the government has asked for $8 billion. However, the Saudi government did not give a signal regarding it.