KARACHI: In the absence of any dollar inflows from the International Monetary Fund (IMF) or friendly countries, foreign exchange reserves of the State Bank of Pakistan (SBP) dropped to $4.34 billion, the lowest since February 2014.

The SBP said on Thursday its reserves decreased by $1.23bn during the week ending on Jan 6 due to external debt repayments.

The country has been facing a serious dollar shortage, which is resulting in restricted imports of even food and industrial raw materials. The latest position of foreign exchange reserves reflects that the country doesn’t have sufficient dollars to cover even one month of average imports.

Net foreign exchange reserves held by commercial banks amounted to $5.84bn while the total liquid foreign exchange reserves were $10.18bn, data showed.

Reserves have been in sharp decline since the beginning of 2022-23. Analysts expect high inflation and low industrial output in the months ahead as production is being squeezed for the unavailability of imported raw materials.

Manufacturers associated with the Karachi Chamber of Commerce and Industry claimed recently that banks weren’t even processing $1,500 payments for the import of spare parts — a phenomenon that’s bringing the entire supply chain to a standstill.

Since the change of government in Islamabad last year, the SBP’s foreign exchange reserves have been falling amid big debt repayments. Reserves stood at $10.5bn in April when the Imran Khan-led PTI government was replaced by the Shehbaz Sharif-led coalition government.

The controlled exchange rate policy, a hallmark of Mr Dar’s brand of economic management, has been roundly condemned by the business community. Foreign trade is almost at a standstill because of a dollar shortage that’s reflected by the widening gap in the official and actual exchange rates as well as a rapidly expanding black market for greenback trading.

Finance Minister Ishaq Dar spooked foreign currency accountholders recently by implying that the dollars held in banks by private citizens were also part of the country’s reserves. He clarified his remarks subsequently and assured the public that the government didn’t intend to raid their foreign currency accounts.

Published in Dawn, January 13th, 2023