Pakistan’s foreign exchange reserves continue to deplete unabated, dropping to under $18 billion – an alarming situation for the economy.
According to the State Bank of Pakistan (SBP), foreign exchange reserves declined to reach $17.94 billion by the end of last week (March 22), after a payment of $168 million in external debts to various banks and foreign agencies against heavy loans.
The foreign exchange reserves maintained by the central bank stand at $11.77 billion, whereas reserves held by private banks are reportedly $6.172 billion.
The present government took excessive loans from international banks and lending agencies, including the issuance of foreign bonds, which has now taken its toll on the reserve situation, as predicted by independent economists and think tanks.
Recently, IMF said that Pakistan’s net international reserves stand at negative $724 million.
Back then, Pakistan had $12.1 billion in its foreign currency reserves. However, the government owed $13.5 billion in foreign exchange liabilities, which made the net reserves negative.
Factors of Depleting Foreign Exchange
The repayment of external loans is the main cause for depleting foreign exchange reserves.
Additionally, the balance of trade is getting worse due to increasing imports bills and stagnant receipts of foreign exchange.
According to the SBP, the trade deficit in both goods and services in the first eight months stands at $23.22 billion, compared to $18.93 billion in the same period last year. This also paved the way towards a higher current account deficit, reaching $10.83 billion.
The recent devaluation of Rupee might help in increasing the value of foreign receipts, mainly from exports earnings.
Furthermore, the government should not only cap its imports bill effectively but also consider alternate steps such as the currency swap agreement with China.
According to expert recommendations, a country should maintain forex reserves for at least three months of its imports bill, otherwise, the country could go bankrupt.
Given the political situation, 2018 is risky for the economy due to the upcoming general elections and transition of the governments.