Aamir Qureshi—AFP
Despite positive indicators in the currency exchange rate, Pakistan’s foreign exchange reserves continued their decline this week, with the State Bank of Pakistan (SBP) reporting that they had dropped to a precipitous $7.8 billion, the lowest level since October 2019.
According to weekly data issued by the central bank, the foreign exchange reserves held by it dipped to $7,830 million on Aug. 5 from $8,385 million on July 29, a slide of $555 million. Overall foreign currency reserves within the country, including net reserves held by banks other than the SBP, were recorded at $13,561.1 million.
The central bank said the decrease was a result of external debt servicing and other payments. “Debt repayments are expected to moderate during the next three weeks of this month. In fact, around three-fourths of debt servicing for the month of August was concentrated during the first week,” it said in a statement accompanying the data.
Financial experts have repeatedly warned of the country’s low foreign exchange reserves, noting that at its current position, the country only has sufficient import cover of less than 1.5 months. The government, in a bid to boost reserves, has sought to reduce the country’s import bill by imposing an import ban and implementing several energy conservation measures, including early closures of commercial markets. However, these steps have started to be reversed, raising fears that the country’s trade deficit would once more rise and impact the current account deficit.
In the past week alone, the government has announced an intent to reverse the import ban on all “non-essential, luxury goods” barring cellular phones, cars and household appliances. The Punjab government—currently led by the PMLQ and PTI that are in opposition to the ruling coalition at the center—has also withdrawn orders for early closures of markets, allowing traders to operate their stores up to 24/7 if they so desire.
Despite the troubling foreign exchange position, Pakistan’s rupee has continuously gained against the U.S. dollar in the interbank market, ostensibly due to indications that a stalled International Monetary Fund loan facility would soon be revived. According to the SBP, the dollar was equivalent to Rs. 218.88 at closing on Thursday, a dramatic improvement from the Rs. 224.04 recorded on Aug. 5.