Pakistan’s Foreign exchange reserves have hit lowest in 12 years by decreasing to $3.4 billion, lowest level since November 2001.

Islamabad, Nov 29/Nationalturk – Highlighting the poor shape of country’s economy, Pakistan’s Foreign exchange reserves have hit lowest in 12 years by decreasing to $3.4 billion, lowest level since November 2001 when country had foreign reserves upto $3.5 billion.

Pakistan newspaper Express Tribune quoted a data of country’s central bank State Bank of Pakistan (SBP) as saying that foreign exchange reserves held by SBP decreased to $3.4 billion, hitting its lowest level since November 2001. In November 2001, country had foreign reserves upto $3.5 billion.

“Total liquid foreign reserves held by Pakistan on November 22 amounted to $8.7 billion. Out of the total liquid reserves, net foreign exchange reserves held by banks other than the SBP amounted to $5.3 billion,” the study revealed.

Foreign reserves were lower in 2001 due to sanctions

According to economic experts, reserves were lower in 2001 because sanctions were imposed on the country after Pakistan conducted nuclear tests in 1998  “The current situation is much different than early years of the previous decade as when Pakistan is not under any sanctions. The mismanagement and lack of strategy have pushed the country closer to default”.

Economist Sayem Ali was quoted as saying by Express Tribune that sharp decline in foreign exchange reserves was due to the hefty oil import payments and external debt repayments, despite the country registering record remittances and a strong growth in exports.

“Aggressive monetary tightening, higher import duties and cash margins on imports would have eased the pressure on foreign exchange reserves. However, the government has so far not shown any urgency to arrest the decline in reserves,” he said.

‘Fall in foreign reserves indicates widening current account deficit’

The alarming decrease in foreign exchange reserves is indicative of Pakistan’s widening current account deficit, which increased to $1.3 billion in the first four months of fiscal 2014 (July-October), a stark comparison to the surplus of $14 million in the corresponding period last fiscal year.

“The IMF agreement was expected to avert a balance of payment crisis. But unfortunately, the upfront disbursement was only $550 million as opposed to nearly $3 billion upfront disbursement in the case of the 2008 loan. Hence, foreign exchange reserves have continued to decline despite the IMF loan agreement,” Ali said.

The SBP-held foreign exchange reserves, which cover less than one month of imports, do not include the $396 million repayment that the country made under the IMF/SBA facility on November 26.

Ali predicted that the SBP reserves would decrease to $3 billion by the end of November.

“This is a critical level and, unless the trend is reversed, Pakistan currency (rupee) will continue to devalue and the cost of borrowing – such as LCs on imports, Eurobond, trade finance – will keep rising, thus hurting businesses,” he added.

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Faiz Ahmad / NationalTurk Pakistan News