As of the week ending on March 24, 2023, Pakistan’s foreign exchange reserves have dropped to $9.816 billion, marking a $323 million decline compared to the previous week’s reserves of $10.139 billion on March 17, 2023.
This comes after a record high of $27.228 billion in foreign exchange reserves on August 27, 2021, with a subsequent decline of $17.412 billion.
Meanwhile, the State Bank of Pakistan’s official reserves decreased to $4.244 billion as of the week ending on March 24, 2023, from $4.599 billion the previous week. Despite this, the central bank’s foreign exchange reserves still provide almost one month’s import cover, with recorded imports of $4 billion in February 2023. Ideally, a central bank should maintain reserves equivalent to three months’ worth of import payments.
The current shortage of foreign exchange in Pakistan is causing concerns for the country’s balance of payments. The government is working to secure a $1.2 billion tranche under the Extended Fund Facility (EFF) from the International Monetary Fund (IMF). However, there has been some positive news with substantial foreign inflows from China that have contributed to an improvement in the country’s foreign exchange reserves.
Pakistan has been experiencing a balance of payment crisis in recent years due to various factors such as a high trade deficit, declining foreign exchange reserves, and a rising current account deficit. The country’s imports have been consistently higher than its exports, leading to a widening trade deficit. The declining foreign exchange reserves have also contributed to the crisis, as the country has struggled to finance its imports and service its external debts.
Furthermore, the rising current account deficit has made Pakistan heavily reliant on external borrowing and aid, which has added to the country’s debt burden. This has created a situation where Pakistan’s debt repayment obligations have become difficult to meet, leading to concerns about the country’s ability to service its external debts and maintain its creditworthiness.
To address the balance of payment crisis, the government of Pakistan has taken several measures such as devaluing the currency, imposing import restrictions, and seeking financial assistance from international organizations such as the International Monetary Fund (IMF). However, the country still faces significant challenges in managing its balance of payments, and sustained efforts are needed to improve the situation in the long run.