Pakistan’s foreign exchange reserves, held by the State Bank of Pakistan (SBP), have fallen to an all-time low of USD 4.343 billion, just enough to cover three weeks’ worth of imports, signalling a vital turning point in the country’s economic crisis.
Details about Pakistan’s economy is on the verge of collapse as there are only three weeks’ worth of imports remaining to cover costs
The loss of foreign currency is a result of two UAE-based banks receiving repayment of commercial loans totaling USD 1 billion. Additionally, remittances between July and December 2022 were USD 14.1 billion, down USD 1.7 billion from the same time the previous year. Remittances are an important source of foreign cash for Pakistan, therefore this is a serious hit to its economy.
The year-long drop in SBP’s foreign exchange holdings is a result of significant service of external debt and financing of imports.
The weekly food inflation has also grown by around 31% since last year, making Pakistan’s citizens’ already difficult lives even more difficult. People are finding it harder and harder to afford necessities like food and energy as a result of the high food inflation and the dearth of foreign currency.
Despite their best efforts, Pakistani authorities have only been able to increase their debt load to other nations and international organisations.
According to a Financial Post report, the State Bank of Pakistan had USD 16.608 billion in foreign exchange reserves at the end of January 2022, albeit those holdings had been steadily decreasing all year. The SBP’s foreign exchange reserves have reached a critical level despite efforts to seek economic aid from international financial organisations and nations.
Pakistan expects to get tens of billions of dollars in financial assistance from friendly countries like China and Saudi Arabia following the delivery of the final installment of an ongoing USD 6 billion International Monetary Fund (IMF) loan. Pakistan may also ask the IMF for another loan and ask for both the first and withheld tranches to be paid out at once.
The economy of Pakistan is at a critical juncture, and to stabilise the foreign exchange reserves and bring relief to the populace, action must be taken right away.