KARACHI: State Bank of Pakistan’s (SBP) foreign exchange reserves hit an eight-year low at $5.576 billion during the week ended on Dec 30, 2022.

Despite fast dwindling SBP reserves, Finance Minis­ter Ishaq Dar is still hopeful about reverting the situation with expected financial help promised by the friendly countries, but nothing has been realised so far.

During the week the SBP foreign exchange reserves saw an outflow of $245 million for external debt repayments.

Foreign debt servicing is the most troubling question for the PMLN-led coalition government facing a serious threat of default. Several attempts to restart talks with the IMF for the release of the next tranche have so far remained unfruitful.

The falling reserves have already deeply devalued the local currency against the US dollar and other major currencies. The SBP’s foreign exchange reserves dipped $11bn to $5.6bn from $16.6bn in Jan­uary 2022.

This massive decline left no space for the government to pay back its foreign debts without borrowing more from friendly countries.

The SBP’s reserves holdings are only enough for imports of three weeks.

The country’s total foreign exchange reserves during the week were $11.4bn including $5.8bn of commercial banks.

The situation is alarming as foreign banks have been charging heavily for the opening of Letters of Credit while local banks are restricted by the SBP due to a severe shortage of dollars.

The SBP reported that the dollar appreciated by 17 paise to close at Rs227.12 on Thursday, but currency dealers in the interbank market quoted the rate at Rs228.10.

Published in Dawn, January 6th, 2023