Islamabad: Pakistan’s central bank’s foreign exchange reserves plummeted to an eight-year low of over USD 5.5 billion amidst fear of default, according to a media report Friday.
The forex reserves have dwindled despite efforts by the government to shore up its economy.
According to a report by the Dawn newspaper, the State Bank of Pakistan’s (SBP) reserves hit an eight-year low of USD 5.576 billion during the week ended December 30, 2022.
During the week, SBP foreign exchange reserves saw an outflow of USD 245 million for external debt repayments.
Foreign debt servicing is the most troubling question for the PMLN-led coalition government facing a serious threat of default. Several attempts to restart talks with the IMF for the release of the next tranche have so far remained unfruitful, according to the newspaper.
The falling reserves have already deeply devalued the local currency against the US dollar and other major currencies. The SBP’s foreign exchange reserves dipped USD 11 billion to USD 5.6 billion from USD 16.6 billion in January 2022, the report said.
This massive decline left no space for the government to pay back its foreign debts without borrowing more from friendly countries. The SBP’s reserves holdings are only enough for imports of three weeks, according to Dawn.
The country’s total foreign exchange reserves during the week were USD 11.4 billion including USD 5.8 billion of commercial banks.
The situation is alarming as foreign banks have been charging heavily for the opening of Letters of Credit while local banks are restricted by the SBP due to a severe shortage of dollars.
The SBP reported that the dollar appreciated by 17 paise to close at Rs 227.12 on Thursday, but currency dealers in the interbank market quoted the rate at Rs 228.10.
Despite fast dwindling SBP reserves, Finance Minister Ishaq Dar is still hopeful about reverting the situation with expected financial help promised by the friendly countries, but nothing has been realised so far, according to Dawn.