Pakistan will not be in the same predicament as neighboring Sri Lanka and has a strategy to restock its forex reserves.
In an interview with Al Jazeera, Finance Minister Miftah Ismail asserted that there was no chance of default. “Yes, we have a strategy to increase our reserves and you will see that they will start to increase,” the minister said.
In terms of a wider spectrum of Pakistan’s overall economy, Miftah explained, “Pakistan has an economy that is not geared towards exports. And so every growth cycle leads to an increase in imports but the exports don’t increase much, resulting in a forex shortage that forces a boom-bust cycle”.
Miftah was recently in the United States to meet with the International Monetary Fund (IMF) to lobby for the continuation of the IMF’s $6 billion loan program, a critical source of cash that keeps the economy going. The three-year program began in 2019, but it has since been halted three times.
For the time being, all eyes are on the ongoing talks with the IMF. This, combined with the news that the $6 billion initiative may be enhanced to $8 billion, has put money markets under a dreamy spell.
According to the State Bank of Pakistan’s (SBP) weekly report released on Thursday, the country’s total liquid foreign exchange reserves went down by $376.7 million (-2.2 percent) on April 23, 2022, to $16.668 billion, compared to $17.045 billion in the previous week. The SBP reserves decreased by $328 million to $10.55 billion (-3.0 percent), compared to $10.88 billion a week earlier.
So far, Pakistan’s foreign exchange reserves have fallen to a 28-month low of less than $11 billion, hardly enough to provide import cover for the next two months. The last time foreign reserves fell below this level was in December 2019.