For the first time in nine years, Pakistan’s foreign exchange reserves declined below $3 billion for the first time in nine years on Thursday, limiting Import capacity to slightly over two weeks before the likely revival of the $6.5 billion loan programme from the International Monetary Fund.
During the week ending February 3, 2023, according to a report released by the State Bank of Pakistan (SBP), the country’s foreign exchange reserves decreased by $170 million (or $2.92 billion) as a result of repayments of external debts by the central bank.
A rapid decline in the forex reserves over the past few weeks has increased the risk of the country defaulting on its foreign debt repayments.
In spite of this, Finance Minister Ishaq Dar has maintained confidence that his country will be able to get a loan program from the IMF resurrected in the near future, as the 10-day talks with the IMF will conclude today.
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The resumption of the programme would enable Pakistan to receive the IMF’s next tranche of $1.1 billion within a few weeks or about a month, allowing it to unlock a further couple of billions of dollars from other multilateral and bilateral creditors, among them friendly nations.
I think the development would benefit the country in the long-run by stabilising the foreign exchange reserves, averting the looming threat of default, and increasing the country’s ability to pay for imports and repay foreign debts in the long run.
Since the end of 2018, there has been a continuing depletion of the Reserves due to previously elevated import payments, low export earnings and a slowdown in the inflows of workers’ remittances over the past 18 months.
At the end of August 2021, the reserves stood at $20 billion, which is equivalent to almost three months’ worth of imports.
As a result, the central bank has also reported that net foreign reserves held by commercial banks have decreased by $32.6 million since the end of last week, taking them to $5.62 billion.
On February 3, 2023, the country held a total of $8.54 billion in liquid foreign reserves, as a result of which the total reserves stood at $8.54 billion.
