The State Bank of Pakistan (SBP) in its latest move to curtail falling foreign exchange reserves has added additional measures to allow access US dollars. Earlier, on Thursday Bloomberg reported that Pakistan’s central bank has increased the amount of red tape needed to access dollars since Pakistan’s foreign exchange reserves have dropped at the fastest pace as compared to other economies within Asia.
After the latest round of currency devaluation last month, SBP directed banks that importers will now need to inform the regulator regarding foreign currency requirements at least a day prior to the actual transaction and would be required to fill out a form for import payments. According to sources cited in the report, these measures apply to transactions that are not backed by a bank’s letter of credit (LC).
Pakistan’s foreign exchange reserves have eroded faster than any other country in the region at -34 per cent during the last 12 months, as compared to Azerbaijan (-8 per cent), Kazakhstan (-6 per cent), Fiji (-6 per cent) and Bangladesh (-4 per cent).
Pakistan being Asia’s second largest economy is now showing signs of distress just before the general elections as foreign exchange reserves have dropped to a record low of more than three and a half years. Moreover, increasing imports have burdened the balance of trade and have resulted in a widened current account deficit, along with unprecedented currency devaluation three times since December to ease the pressure.
“Once you go into high current account deficit and reserves deplete, this happens,” said Collective for Social Science Research Director Asad Sayeed. “Investments are going to be affected. Your high growth time is over now.”
Moreover, Pakistan’s caretaker Finance Minister Shamshad Akhtar has also said that Pakistan’s economy faces “some very daunting challenges,” but the decision to approach the International Monetary Fund (IMF) for support will have to be taken by the new government after the July 25 ballot. Recently, Moody’s Investors Service also revised its outlook downward to negative from stable citing heightened external vulnerability risk.
“On the external front, there is a need to arrange external financing in the short-term, and resolve structural issues affecting competitiveness in the medium and long-term,” read SBP’s quarterly report issued on Wednesday.