State Bank foreign reserves plunges to $6.1b – the eight-year low

Pakistan faces a serious crisis, as the foreign exchange reserves held by the central bank have plunged $6.1 billion as of Dec 16 after a decrease of $584 million, which are barely enough to cover one month’s imports.

The State of Bank of Pakistan (SBP) data shows it is lowest level of reserves since April 2014 as the reserves declined by $11.6 billion when compared with December 2021 when the amount stood $17.7 billion.

With reserves declining to critically low levels, there are fears that Pakistan may not be able to meet its external obligations for fiscal year 2023.

On the other hand, the foreign reserves held by commercial banks now stand at $5.9 billion, meaning the country’s total liquid foreign reserves are $12 billion.

It is a very complex situation amid a depreciating rupee which was traded at Rs225.43 in interbank rate as the black market is also very active and offering huge margins to the buyers.

However, the Pakistan Stock Exchange was continuing with the positive trend set yesterday with the KSE-100 Index in the green zone during early trading on Friday despite the fact that the Punjab governor has denotified the chief minister.

There is no clarity on when the International Monetary Fund (IMF) will complete its ninth review. As a result, several experts including former finance minister, Miftah Ismail, claim Pakistan still faces the risk of default.

Pakistan entered a $6 billion IMF programme in 2019, which was increased to $7 billion earlier this year. The programme’s ninth review is currently pending with remote talks being held between IMF officials and the government for the release of $1.18 billion.

However, the release of the latest tranche has been delayed as independent economists believe the government has fallen behind on pre-requisite performance criteria laid out by the IMF.

Although multiple officials including Finance Minister Ishaq Dar say Saudi Arabia and China have agreed to support Pakistan’s reserves, so far no confirmation has been received from both countries.

Experts believe injections from friendly countries may not materialise without the release of IMF’s tranche.

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