Islamabad: Pakistan’s foreign exchange reserves dropped to an 8-year low and plummeted to $5.8 billion in December, according to the latest official figures.
State Bank of Pakistan’s foreign exchange reserves further declined by $294 million to $5.8 billion due to external debt repayment, reaching the lowest level since April 2014. This means the country has only enough reserves to cover one month of imports, according to Arif Habib Limited, a brokerage and banking research firm. The central bank’s data show forex reserves are at $11.7 billion, with the commercial banks holding $5.9 billion.
Pakistan has been facing a severe economic crisis amid dwindling forex reserves and currency depreciation, prompting concerns that the country may default on its sovereign debt repayment. Pakistani currency sharply devalued from PKR177 in March this year to more than PKR226 now in the interbank. There is a huge difference in rates of the interbank and open market where one dollar is selling at PKR260 to PKR270. The top three credit rating agencies, Standard & Poor’s (S&P) Moody’s, and Fitch, have also downgraded Pakistan.
Economic crisis explained
Pakistan’s finance minister Ishaq Dar has tried to dispel fears that the country was on the brink of default. But the market situation does not support his assertions and experts say that the current economic trajectory is highly alarming.
“This is a self-inflicted crisis culminating from unwarranted political crises, civil-military fracturing, delayed fuel price hikes, delayed fuel price reversals, tip-toeing with IMF and unwillingness to take structural reforms” economic analyst Asif Arsalan H. Soomro spelled out the reasons while talking to Gulf News. It is time to admit that “without bargaining with IMF, we are heading for a systematic crash of economic and civil order,” he said, adding the the “pain of economic contraction would be felt for the next two to three years until exports growth, interest rate comes back to 11 to 12 per cent and energy circular debt is decisively curtailed with a hike in utility prices.”
Traders and analysts described 2022 as a tough year and warned the trend could persist in the coming year amidst deep political uncertainty. The year “2023 is a test for policymakers. From today till the formation of a new government, stakeholders need to take tough decisions. We need a smooth transfer of power and a consensus-led government with a new three to four years IMF program targeting growth in exports and taxation while reducing the national debt” Soomro suggested.
The country has been in negotiations with the International Monetary Fund (IMF) to secure another tranche under a $7 billion bailout package. Pakistan will get $1.18 billion after the programme’s ninth review, which is currently pending. Pakistan has borrowed about $5.115 billion in foreign loans in the first five months (July-November) of the current fiscal year. Pakistan’s Prime Minister Shehbaz Sharif recently said that the government has “no other option” but to implement the IMF programme and that the government can not offer fair subsidies to farmers or industries or even help the flood-affected people without consulting IMF.
Recently, Pakistan’s Minister of State for Finance and Revenue Dr Aisha Ghaus Pasha said the country continues to hold dialogues with China and Saudi Arabia for inflows of $3 billion each and the government was also in contact with IMF for a bailout.