Imports rise, exports dip putting Pak’s $5.82bn reserves in trouble 

With import restrictions lifted, export subsidies withdrawn, the SBP’s reserves clocking in at $4.82 billion are seeming dangerously low 

KARACHI, ISLAMABAD: The State Bank of Pakistan’s liquid foreign reserves dropped $294 million in the last week, bringing the reserves to an eight year low of $5.82 billion on the 23rd of December 2022. The SBP has raised rates on the Export Finance Scheme (EFS) and Long Term Financing Facility (LTFF) by 2% bringing the rate to 13% compared to 11% earlier. 

The SBP further adds that in the future the markup rates for EFS and LTFF will change along with the monetary policy rate. “… markup rates for EFS & LTFF will be revised automatically so that the gap between the policy rate and EFS & LTFF rates is maintained at 3%,” read the circular.

The EFS markup rate was last hiked in April 2022 when it was brought from 3% to 2.5%. 

Why is the SBP bringing up the EFS and LTFF rates? 

Tahir Abbas, Head of Research at Arif Habib Limited says, “The government is not in a position of subsidizing these facilities amid overall slowdown in the economy alongside challenges on the fiscal side. Additionally, there might be some pressure from the IMF on the SBP and government to cut down these subsidized financing facilities..”

“Eventually the SBP will phase out these schemes and transfer these facilities to Export-Import Banks,” says Fahad Rauf, Head of Research at Ismail Iqbal Securities. “The SBP will focus on its core objectives i.e. price stability and stability of the financial system”, he adds. 

Rauf explains that this will hurt exporters; especially those that used the EFS considering LTFF and TERF are long term. “EFS borrowers primarily consist of exporters in the textile, rice, sugar, cement and leather sector. As a result of the subsidies being pulled back, exports may decrease adding pressure on the already strained reserves. 

How strained are the reserves?

During the calendar year, the SBP FX reserves have dropped by a whopping $11.9 billion. A $3.994 billion drop alone has been witnessed since the start of the fiscal year in July 2022. As per the ministry of Finance, just the external liabilities for the next quarter stand at $8.3 billion.

The reserves are not only used to meet external obligations, but also to finance imports. The country’s import cover has reached an alarming level of 1.1 months signifying a severe crash crunch.

On Tuesday, the SBP withdrew restrictions on imports effective January 2, 2023 in an attempt to smoothen the process with the 9th International Monetary Fund (IMF) review to release the next tranche.

The Finance Minister, Ishaq Dar, remains adamant that Pakistan will complete the ninth review of the IMF by the end of January. This review promises to bring 1.7 billion dollars to Pakistan under the IMF’s Extended Fund Facility. He said this while talking at a launch event on Wednesday.

What is the import cover?

A general measure to know whether the reserves are adequate enough or not is to look at the import cover. Countries should hold reserves covering 100 percent of short-term debt or the equivalent of 3 months worth of imports.

Import cover is the number of months of imports that could be covered by a country’s

international reserves. Import cover is an important indicator of the stability of a currency. As per a study by the IMF, 3 months of imports remains broadly appropriate for countries with flexible exchange rates, given the estimated benefits provided by reserves in reducing both the probability and impact of shocks. The analysis also suggests that countries with good institutions and policies need lower levels of reserves.

Is the import cover going to slide lower?

The import cover is calculated taking the average imports of the last 3 months. The import cover, however, in this case may be exaggerated considering the limitations on imports that the SBP had in place and has recently withdrawn.

“Attention of the Authorised Dealers (ADs) is invited to EPD Circular letter No. 9 of May 20, 2022 and Circular letter No. 11 of July 5, 2022, wherein ADs were required to seek prior permission from Foreign Exchange Operations Department SBP-BSC before initiating any import transaction pertaining to HS Code Chapter 84, 85 and certain items of Chapter 87,” read the circular.

Previously, the cash-strapped SBP required Authorised Dealers (ADs) to seek prior permission from the Foreign Exchange Operations Department (FEOD), and SBP –BSC before initiating import transactions which included issuance or amendment of letters of credit (LCs), registration or amendments of contracts, making advance payments, and authorising transactions on open account or collection basis. The approval was granted on a case-to-case basis.

While the SBP has removed the restriction, ADs are asked to prioritise or facilitate imports under essential imports, energy imports, imports by export-oriented industry, imports for agriculture imports, deferred payment/self-funded imports, and imports for export-oriented projects near completion.

What this means is that without restrictions, the country’s imports may rise, bringing the reserves down; and consequently the import cover too.

Who other than the IMF?

The total liquid foreign exchange (FX) reserves for the country clocked in at $11.7 billion, falling $293 million in a week, as the change in FX deposits with the banks increased by a meagre $1 million.

According to the Minister of State on Finance and Revenue, Dr. Aisha Ghous Pasha, Pakistan expects more forex inflow in the form of a Saudi loan of US$3 billion. This loan was also mentioned by FM Ishaq Dar, in the start of December and was expected to come to Pakistan during the month of December. However, experts suggest that a delayed IMF review has not only cost Pakistan, its credit ratings and an inflated default swap, but also its credibility amongst its bilateral creditors.

The minister also negates any concerns over Pakistan defaulting. As far as Pakistan’s foreign debt is concerned, the minister says that the government is also in talks with friendly, bilateral countries to roll over their debts that mature in the said time period. However, the restructuring of multilateral debt remains contingent upon the IMF review.



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Shahnawaz Ali
Shahnawaz Ali
The author is a Finance journalist at Profit and can be reached via email at [email protected] and via twitter @shahnawaz_ali1


  1. IMPORTED Backward and EVIL Arab ideology of Quran and The way of VICE that their false allah preaches are cause of decline destruction and death all across Backward Islamic societies including Pakistan

    • Yes. More than One-Thousand-Six-Hundred Terrorist Individuals belonging to Pakistan are today part of United-Nations Proscribed Terrorist Sanctions List.

      Apart from this, More than One-Hundred and Twenty Three Islamic TERROR Organizations originating in Pakistan are on United Nations Al-Qaida/ISIS Sanctions List.

      No doubt, ISLAM and the EVIL teachings of Quran are responsible for all this menace across the world.


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