The Federation of Pakistan Chambers of Commerce and Industry’s (FPCCI) Businessmen Panel (BMP) has denounced the government for not keeping a check on foreign exchange market, as the foreign exchange reserves held by the State Bank of Pakistan has decreased by $15 million on a weekly basis, clocking in at $11.70 billion, because debt servicing on foreign loans continues to eat up SBP’s holdings.
FPCCI former president Mian Anjum Nisar said that the exchange rate looks stable, but increasing debt servicing costs have put the economy at risk, as that Pakistan’s economy was stuck in a low-growth trap with poor human development outcomes and increasing poverty.
Overall, the country’s total foreign reserves, including those held by commercial banks, dropped by $30.9 million, or 0.19%, to stand at $16.38 billion.
Reserves held by commercial banks also saw a decline, falling by $15.6 million, or 0.33% WoW, to settle at $4.68 billion.
Despite the weekly contraction, SBP-held reserves have witnessed significant growth in the current fiscal year, rising by $2.31 billion, or 24.56%. However, on a calendar-year basis, the reserves have posted a slight decrease of $15.3 million, or 0.13%. The foreign exchange reserves have remained a key indicator of Pakistan’s economic stability, particularly amidst ongoing challenges in external financing and currency market volatility. Experts note that maintaining adequate reserve levels is crucial for meeting international obligations and stabilizing the local currency.
The central bank’s reserves, which provide an essential cushion against economic shocks, have shown resilience over the fiscal year. However, fluctuations such as these underscore the importance of prudent external account management amid evolving global economic conditions.
Mian Anjum said the economic conditions leave Pakistan highly vulnerable to climate shocks with insufficient public resources to finance development and that international experience suggests that domestic debt reprofiling did not always work unless associated with sharp and sustained structural reforms. He said the IMF had identified the need for reforms over three to four decades ago, but they were still pending. With the formation of the Special Investment Facilitation Council (SIFC), the government aims to bring up to $100 billion in investments in the next three to five years, particularly from the Middle East.
Memorandums of understanding (MoUs) have been signed with the UAE, Kuwait and Saudi Arabia for billions of dollars, which has helped stabilise the domestic market while the stock exchange has been crossing one milestone after another. While these funds could bolster the SBP’s reserves, ongoing debt servicing may continue to erode them. The BMP chairman pointed out several times that the State Bank has been buying dollars for debt servicing and to keep the reserves at the current level. This buying has resulted in a tight grip over imports, which fell by 17.3 percent year-on-year to $21.5 billion during the first six months of the current fiscal year. This steep decline in imports with a slight improvement of exports reduced the trade deficit. Not only are the importers in trouble, but the State Bank has grossly restricted the profits outflows, he said.
Pakistan received just $524 million in FDI during July-Dec, an annual increase of just 6.8 percent. Adding to the concerns, the country’s foreign debt and liabilities rose by $3.48 billion, reaching $128.09 billion in the first quarter of FY24.
Mian Anjum Nisar said the economic conditions leave Pakistan highly vulnerable to climate shocks with insufficient public resources to finance development and that international experience suggests that domestic debt reprofiling did not always work unless associated with sharp and sustained structural reforms. He said the IMF had identified the need for reforms over three to four decades ago, but they were still pending.
The exchange rate is no longer deteriorating as it was until the end of August, thanks to the army-sanctioned actions against illegal dollar trade and unchecked smuggling to Afghanistan. The current account deficit is contained, and the haemorrhage of foreign exchange reserves stopped for now.