Pakistan’s Foreign Exchange Reserves Decline by 2.7% as Central Bank Faces Challenges

Declining Foreign Exchange Reserves

Pakistan’s foreign exchange reserves held by the central bank have experienced a decline of 2.7% on a weekly basis, as revealed by data released by the State Bank of Pakistan (SBP) on Thursday. The diminishing reserves present challenges for the country’s economy and raise concerns about its financial stability.

Reasons for Reserves Decline

As of May 19, the foreign currency reserves held by the SBP were recorded at $4.193 billion, reflecting a decrease of $119 million compared to the previous week’s reserves of $4.312 billion on May 12. The SBP attributed this decline to external debt repayments. The overall liquid foreign currency reserves, including the net reserves held by banks other than the SBP, stood at $9.731 billion. This represents a decrease of $206 million from the previous week. The net reserves held by banks amounted to $5.538 billion, experiencing a decline of $88 million during the same period. The consecutive decline in the central bank’s reserves has led to the country’s import cover shrinking to just 0.93 months.

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Implications for Import Cover and Future Reserves Forecast

The lack of progress on the staff-level agreement with the International Monetary Fund (IMF) poses a significant challenge, as it could potentially result in further decline of the reserves in the coming days. The absence of a firm agreement with the IMF affects investor confidence and reduces the inflow of financial support, exacerbating the strain on the foreign exchange reserves.

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The declining foreign exchange reserves have implications for Pakistan’s economy, particularly in terms of import cover. With a decreasing import cover ratio, the country’s ability to meet its international payment obligations and maintain a stable exchange rate becomes increasingly challenging.

Efforts to reach a staff-level agreement with the IMF should be prioritized, as it would provide financial support and restore confidence in Pakistan’s economic stability. A successful agreement would contribute to rebuilding the foreign exchange reserves and bolster the country’s economic resilience.