Pakistan's foreign exchange reserves fall below $3b

The low forex reserves, currently at a nine-year low, raise the risk of default on foreign debt repayment

KARACHI:

Pakistan's foreign exchange reserves slipped to the alarming level of below $3 billion for the first time in nine years on Thursday, reducing import capacity to slightly over two weeks ahead of the likely revival of the IMF $6.5 billion loan programme.

The State Bank of Pakistan (SBP) said in its latest weekly update that the country's foreign exchange reserves decreased by $170 million to $2,916.7 million (or $2.92 billion) due to external debt repayments in the week ending February 3, 2023.

The alarming levels of the forex reserves have raised the risk of default on the repayment of foreign debt.

However, Finance Minister Ishaq Dar has remained confident about getting the IMF loan programme revived soon, as the 10-day talks with IMF are scheduled to conclude today.

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The resumption of the programme would help Pakistan receive IMF's next tranche of $1.1 billion in a few weeks or about a month, unlocking another couple of billions of dollars from other multilateral and bilateral creditors including friendly countries.

The expected development would provide much-needed support in stabilising the foreign exchange reserves, avert the looming risk of default, and increase the country's capacity to pay for imports and repay foreign debt.

The reserves have continued to deplete for the past 18-month period due to previously elevated import payment, low export earnings and slowdown in inflows of workers' remittances.

The reserves stood equivalent to almost three-month import capacity at $20 billion in August 2021.

The central bank further reported that net foreign reserves held by commercial banks dropped by $32.6 million to $5.62 billion in the week under review.

Accordingly, the total liquid foreign reserves held by the country stood at $8.54 billion as of February 3, 2023.