KARACHI: The State Bank of Pakistan’s (SBP) foreign exchange holdings dropped to an alarming level of just $6.1 billion after an outflow of $584 million during the week ended Dec 16.

The central bank reported on Thursday that the reserves decreased due to external debt repayments. The repayment is becoming more difficult each day as the promised ‘inflows’ are not realised yet.

Pakistan has been requesting IMF for disbursement of the next tranche of $1.2bn, asking China to roll over $13bn loans and seeking $4bn from Saudi Arabia in addition to deferred oil payments. However, nothing concrete is visible and the dwindling SBP reserves reflected this alarming situation.

The IMF has delayed the 9th review under the $7bn Extended Fund Facility for two months after the PMLN-led coalition government failed to comply with the conditions set by the lending agency in the last review.

The IMF is asking the government to impose new taxes of Rs800bn while the government is resisting it to avoid further damage to its political image.

Experts are advising the government to impose more taxes on banks since the financial sector has been making huge profits but again the government is paying high interest on borrowing from banks.

Banks have been investing maximum in risk-free government papers at a high rate of return of about 16pc, leaving no liquidity for the private sector, which is already depressed by the expensive cost of borrowing.

Furthermore, persistent political and economic instability has destroyed the exchange rate. The dollar rates in the interbank have been kept artificially low compared to the dollar prices in open and grey markets. The interbank dollar rate went up by 49 paise in the last four days to Rs225.43 on Thursday while the exchange companies reported the open market rate as 234.50. The grey market offers Rs255 plus for greenbacks

The State Bank report showed that the country’s overall foreign exchange reserves fell to $12bn including $5.883bn of commercial banks during the week ended December 16.

Published in Dawn, December 23rd, 2022