The State Bank of Pakistan (SBP) reports that the country’s foreign exchange reserves continue to decrease as it struggles with an increasingly severe balance of payments crisis. According to the central bank, its reserves fell by $74 million in the week of May 5th due to external debt repayment, bringing its reserves to $4.38 billion. The reserves held by commercial banks were also down by $1.23 billion bringing the country’s total liquid foreign reserves to a critically low level of $9.99 billion.
Experts say that Pakistan’s current reserves are not enough to cover even a month’s worth of imports. Earlier this week, Moody’s Investor Service warned that the country was at risk of defaulting without an International Monetary Fund (IMF) program because the country’s foreign exchange reserves were deemed “very weak.”
The government has been in negotiations with the IMF since November for the release of a $1.1 billion tranche which is desperately needed to avert a default. In order to reduce dollar outflows, the government has imposed import curbs, which resulted in a current account surplus of $654 million in March, the highest level since February 2015. However, many companies across various sectors have cited inventory shortages and difficulties in opening letters of credit (LCs) due to the import curbs as reasons for partial or complete shutdowns of their operations.
Additionally, the rupee has fallen to a record low of Rs298.93 against the US dollar due to the persistent low reserves and political uncertainty.