Pakistan faces risk of default as its forex reserves plunge to eight-year low
Pakistan’s foreign exchange reserves plunged to $6.1 billion, the lowest since 2014, as of December 16, the central bank of the country has said. In continuation of the declining spree, foreign exchange reserves dropped to levels worth just eight weeks of imports by $584 million compared wit
Pakistan faces risk of default as its forex reserves plunge to eight-year low
FE ONLINE DESK | Published: December 23, 2022 21:14:34
Pakistan’s foreign exchange reserves plunged to $6.1 billion, the lowest since 2014, as of December 16, the central bank of the country has said. In continuation of the declining spree, foreign exchange reserves dropped to levels worth just eight weeks of imports by $584 million compared with $6,700 on December 9, according to Dawn and Geo News.
In the last 12 months, SBP’s reserves have declined by $11.6 billion. In December 2021, the SBP’s reserves were $17.7 billion which now stand at $6.1 billion.
The drop means the reserves have fallen further from last week's barely 1.5 months of import cover, even as it battles decades of high inflation and scrambles to secure International Monetary Fund (IMF) funds.
With no clarity on when the International Monetary Fund will complete its ninth review, several experts including Pakistan’s previous finance minister, Miftah Ismail, claim Pakistan still faces the risk of default.
Pakistan entered a $6 billion IMF programme in 2019, which was increased to $7 billion earlier this year. The programme’s ninth review is currently pending with remote talks being held between IMF officials and the government for the release of $1.18 billion.
However, the release of the latest tranche has been delayed as independent economists believe the government has fallen behind on pre-requisite performance criteria laid out by the IMF.
Although multiple officials including Finance Minister Ishaq Dar say Saudi Arabia and China have agreed to support Pakistan’s reserves, so far no confirmation has been received from both country.
Experts believe injections from friendly countries may not materialise without the release of the IMF’s tranche. With reserves declining to critically low levels, there are fears that Pakistan may not be able to meet its external obligations for the fiscal year 2023.
However, in a podcast this month, the SBP governor expressed confidence in the country’s capacity to pay back the entire $23 billion due this fiscal year.
