In the most recent update by the State Bank of Pakistan (SBP), Pakistan is yet again at its lowest level of Foreign Exchange reserves, in the last 8.5 years. In a consistently declining trend since October, the state bank’s liquid foreign exchange reserves have slid to a dangerous $5.576 billion.
The FX reserves with banks also slid by 39 million dollars leaving Pakistan’s total liquid FX reserves at $11.42 billion.
What does the government say?
However, the finance minister remains confident that, “the foreign reserves position would be much better in June 2023”, he said, while talking to the press on the 4th of January. In the same press conference, the finance minister stated that Pakistan is in no way going to default on its loans.
With an alarmingly low level of Forex reserves, Pakistan looks towards the IMF program amongst other financing sources. According to Ishaq Dar, the delay in the 9th review of the IMF is caused by some prior conditions of the Fund. The IMF requires Pakistan to provide details on its flood rehabilitation funds.
He also stated that additional funds from friendly countries, like Saudi Arabia, were expected to come in a few days. A statement that he first iterated, verbatim, more than a month ago.
Why are low Reserves Bad?
Pakistan’s liabilities for the ongoing quarter stand at $8.3 billion, as per the ministry of finance. But a country uses its foreign reserves not only to pay off its debts, but to also fund the cost of its imports. The country’s ability to fund its imports for a certain period of time is called the import cover of that country. With falling reserves, Pakistan’s import cover slides to less than 35 days, but that is not all.
The SBP recently withdrew restrictions on imports, allowing Authorised Dealers (ADs) to process payments and LCs, without prior permission of Foreign Exchange Operations Department of the State Bank.
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. The import cover, which is calculated using the import figures of the last three months, might also be overstated, factoring in for the lack of restrictions in the months to come.
May all the Pak politicians and decision makers burn in hell. Indian foreign exchange reserves are USD 250 billion and Pakistan foreign exchange is 5 billion. There is some serious wrong with this country.
this is critical fall in liquid reserves and this is alarming position. Govt should take action. As 5.5bn cross the reserve redline.
Pakistan needs fresh elections to get out of these political crisis.