KARACHI: With the expected IMF tranche still nowhere to be seen, State Bank of Pakistan’s foreign exchange reserves on Thursday further declined by $294 million to $5.8 billion — their eight years’ low — making it even more difficult for the country to repay its foreign debts.

The country has been facing a worrisome scenario as the reserves are not enough to service its huge foreign debt.

Though Finance Minister Ishaq Dar insists Pakistan will not default, the situation on the ground hardly supports his assertions.

The central bank’s foreign exchange reserves have been persistently falling since the beginning of FY23. Analysts and experts paint a gloomy picture for the state of economy as they believe that the country is close to default. They are not simply ready to buy the finance minister’s statement on default.

Since the change of government in Islamabad earlier this year, the SBP’s foreign exchange reserves have been falling and the few inflows over this period have proved to be too little to meet heavy payments. In April, when the Imran-led PTI government was replaced by the Shehbaz-led PDM government, the reserves stood at $10.5bn as compared to $5.8bn on Dec 23.

Experts reluctant to accept Dar’s ‘optimism’

The fear of default is also evident from the exchange rate instability which has eroded the value of local currency against all the major currencies, particularly the US dollar. A US dollar, which was sold at Rs180 in April, traded at Rs226 in the inter-bank market on Thursday. Yet, the greenback has almost vanished from the open market over the last couple of months. Worse, a grey market has emerged due to the shortage of American dollar which is offering a dollar for Rs260 to Rs270, against the inter-bank rate of Rs226.

This significant difference in the rates has already started affecting the remittances coming through official banking channels with inflows witnessing a falling trend.

Approximately, Pakistan is losing about $300m remittance per month. Bankers said the low exchange rate being managed by the State Bank artificially has diverted this $300m to the illegal grey market. Currency experts said if this trend continues then more remittances would go to the grey market and the country would lose about $4bn at the end of the current fiscal FY23.

The poor economic growth has already slashed the foreign direct investment in the country as it received just $430m during July-Nov FY23, compared to $885m in the same period last year — a decline of 51 per cent.

All stakeholders, except the foreign minister, were found to be extremely worried about the weakening health of foreign exchange reserves. They said the finance minister must announce that he had arranged payments to be made for the debt servicing. Neither China nor Saudi Arabia has so far announced that they are going to help save Pakistan from default.

The State Bank reported that the country’s overall reserves were $11.707bn, including $5.88bn of the commercial banks.

Published in Dawn, December 30th, 2022