Forex reserves fall to $16.161 billion

KARACHI: Pakistan's foreign exchange reserves decrease by $215 million or 1.3 percent to $16.161 billion in the week ending May 13, compared to $16.376 billion in the previous week, the central bank said on Thursday.

Analysts said reserves fell on higher import bills and external debt payments.

“During the week ended May 13, SBP (State Bank of Pakistan) reserves decreased by $145 million to $10.163 billion,” the bank said in a statement. The SBP reserves are enough to cover 1.52 months of imports.

The reserves of commercial banks fell 1.1 percent to $5.997 billion.

A soaring twin deficits (current account and trade), lack of foreign currency inflows, and increasing foreign debt servicing obligations led to the fast depletion of the forex reserves. The falling reserves put pressure on the currency, which hit record lows for the last eight sessions.

Analysts said the balance of payments crisis will worsen further soon if the government fails to arrange fast foreign assistance to foster the forex reserves as import payments continue going up due to more opening of letter of credit for import in anticipation of further weakness in the rupee, while exporters are not bringing dollars to the market.

Pakistan has started discussions with the International Monetary Fund to obtain the release of funds from the bailout out package to help bolster the economy. If the negotiations are successful the Fund will release the next tranche of around $1 billion to the country. For this, Pakistan's coalition government needs to roll back billions in fuel subsidies and ease strain on public funds.

Reducing the economy’s external debt and current account deficit is not just the biggest economic issue faced by the country. It is now a national emergency, according to latest report from Institute for Policy Reforms titled “What to do about Pakistan’s mountain of debt.”

Addressing it is critical for economic revival as well as for economic security. If this is not done, there is every chance that the economy may default or face a Sri Lanka type situation when it does not have the means to import essential energy and food supplies, it said.

Because the problem does not arise merely from a lack of access to foreign assistance, the needed response must be broad based and cover a range of areas. The government present focus is on getting more credit to solve immediate challenges. While that is needed, it is an insufficient response and one that ensures that before long we will have the same problem again. Our over twenty visits to the IMF are testimony, it added.

“The present situation is dire and can no longer continue. To address the problem sufficiently, it is critical to know why we keep coming to such a pass, so often,” the report said.

“Even a casual analysis convinces us that government must revisit its entire economic policy agenda. To do so, it must make some difficult and delicate political choices. So far, there is no sign of that happening,” it added.