In a challenging turn of events for Pakistan’s economy, the foreign exchange reserves held by the State Bank of Pakistan (SBP) have plummeted to $3.91 billion.
The decline in reserves is primarily attributed to external debt payments, coinciding with the expiration of the country’s International Monetary Fund (IMF) program, which has been stalled for several months.
The SBP announced on Thursday that the reserves decreased by $179 million during the week ending on June 2, leaving the country with barely enough coverage for controlled imports for just one month.
Commercial banks, on the other hand, are holding net foreign reserves worth $5.42 billion, $1.51 billion more than the central bank. Consequently, Pakistan’s total foreign reserves stand at $9.3 billion as of June 2.
This marks the sixth consecutive weekly drop in foreign exchange reserves for Pakistan, signaling a lack of progress in securing external financing. Political instability has played a significant role in the deteriorating economy, and the country has yet to secure much-needed funding to avert the risk of default.
Pakistan’s $350 billion economy is currently in turmoil due to financial woes and the delay in reaching an agreement with the IMF. The pending agreement would release crucial funds that are essential for stabilizing the economy.
The government has been engaged in discussions with the IMF since the end of January to resume a $1.1 billion loan tranche, which has been on hold since November 2022. This loan is part of a larger $6.5 billion Extended Fund Facility (EFF) agreed upon in 2019.
Earlier today, Finance Minister Ishaq Dar revealed that the coalition government has shared its budget numbers with the IMF, aiming to unlock the ninth review.
He expressed confidence that there are “no issues in the numbers.” Pakistan’s government faces significant pressure from the IMF to implement stringent fiscal measures and unlock the final tranche of a vital bailout package.
To meet the IMF’s requirements, Pakistan must eliminate subsidies in sectors such as energy, allow the rupee to float against the US dollar, increase taxes and duties, and impose import restrictions. These measures are seen as crucial steps toward stabilising the economy and securing external funding.
The future of Pakistan’s economy hinges on successful negotiations with the IMF and the implementation of effective economic reforms.
The government must address political instability and work towards regaining the confidence of international lenders to alleviate the financial strains on the country.