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Pakistan’s Foreign Exchange Reserves Drop to $2.92b

Central bank’s reserves decline by $170 million in week ending Feb. 3 due to external debt payments

by Staff Report

Aamir Qureshi—AFP

The State Bank of Pakistan (SBP) on Thursday issued data showing that the country’s foreign exchange reserves had fallen below $3 billion as Islamabad works to revive a stalled International Monetary Fund (IMF) bailout seen as key to avoiding default.

An IMF mission concluded a 10-day visit to Islamabad on Thursday night, with Finance Minister Ishaq Dar telling media on Friday morning that it had provided Pakistan with a draft memorandum of economic and financial policies (MEFP). Discussions on the MEFP would continue virtually after the weekend, he said, adding that these would eventually lead to a staff-level agreement that would unlock the next tranche of $1 billion from the global lender.

In a statement, the central bank said that its foreign exchange reserves had declined to $2,916.7 million in the week ending Feb. 3, barely sufficient to cover imports of two weeks, as $170 million was disbursed for external debt payments. According to the SBP’s data, commercial banks hold $5,622.9 million in reserves, bringing the total liquid foreign reserves of the country to $8,539.6 million.

When questioned about the dangers posed by this decline, Dar told media not to be concerned, maintaining that once the IMF bailout were revived, it would also lead to financial support from “friendly” nations. The incumbent government has been relying on countries to provide fiscal support for several months but the promised funds have yet to materialize. Due to the precarious state of the reserves, Pakistan’s import sector has all but collapsed, with commercial banks increasingly unwilling to issue letters of credit for all industries, forcing the closures of several factories over the past few months.

Amidst all this, the rupee has fallen to a historic low against the U.S. dollar, trading at 270.51 in the interbank market, with local currency exchange companies complaining of the scarcity of dollars boosting a ‘grey’ market that is facilitating the smuggling of the greenback to neighboring Afghanistan.

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