Pakistan's foreign exchange reserves plunge to lowest level since December 2019


According to a media source, Pakistan's foreign exchange reserves have decreased to their lowest level since December 2019, due to rising current account and trade deficits, greater external debt payments, and drying dollar inflows.

Pakistan's foreign exchange reserves plunge to lowest level since December 2019
Cash-strapped Pakistan’s foreign exchange reserves have dropped to their lowest level since December 2019, owing to an increase in current account and trade deficits, higher external debt payments and dried dollar inflows, according to a media report on Friday.
As per data from Pakistan’s central bank, inflows clocked in at $16.4 billion in the week that ended May 6, from $16.5 billion a week earlier.
The country’s foreign exchange reserves declined by $178 million or 1.1 percent on a week-on-week basis to stand at $16.376 billion, the central bank data showed. The central bank reserves also fell to a 23-month low, decreasing by $190 million to $10.308 billion, Pakistan’s Geo News cited the data as showing.
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The decline was attributed to outflows related to external debt repayments. Analysts estimate the central bank’s latest reserves can cover imports for 1.54 months.
The reserves of commercial banks, however, soared up to $6.067 billion from $6.054 billion. Increasing twin deficits — the current and trade deficits, lack of foreign currency inflows, and increasing foreign debt servicing obligations led to the fast depletion of the forex reserves.
The falling reserves put pressure on the currency as it plunged to an all-time low of Rs 191.77 per dollar in the interbank market. The delay in the revival of the International Monetary Fund (IMF) bailout along with the lack of pledges of funding from friendly countries is adding pressure to the foreign reserves and the local unit.
Pakistan-Kuwait Investment Company Head of Research Samiullah Tariq said the decline in the reserves was nominal. However, in terms of imports cover, we are lower than three months, and we have to go into the IMF programme to stabilise the reserves, Tariq was quoted as saying.
Prime Minister Shehbaz Sharif, who took office last month after the ouster of Pakistan Tehreek-i-Insaf’s Imran Khan, faces a battle to secure the revival of the IMF bailout as a bailout is a prerequisite for further financial assistance from other bilateral and multilateral creditors. Pakistan needs quick foreign currency inflows to meet import and debt payments amid falling foreign exchange reserves.
The present government will also have to cut costly energy subsidies introduced by the then .
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