Pakistan’s central bank forex reserves have reached an eight-year low of $5.6 billion, posing a significant challenge for the country in financing imports. Coupled with another $5.8 billion held by commercial banks, the country has a total of $11.4 billion in reserves, enough to pay for only three weeks of imports, according to traders and economists.
“This is a very grave situation. If things get worse, Pakistan will need to have its loans restructured,” said Mohammad Sohail, the head of economic watchdog Topline Securities in Karachi, alluding to a possible default.
Pakistan’s economy has been struggling amid a political crisis, a plummeting rupee, and high levels of inflation. Devastating floods and a global energy crisis have added further pressure. The latest data from the State Bank of Pakistan show that the country has half the foreign exchange reserves it held a year ago.
Servicing foreign debt and paying for crucial commodities such as medicine, food, and energy are among the chief concerns. Thousands of shipping containers are held up at a Karachi port because banks have been unable to guarantee foreign exchange payments. This cargo includes perishable foodstuffs and medical equipment worth tens of millions of dollars. “A major hospital in Karachi could not carry out eye surgeries for a month because of a lack of equipment,” said Masood Ahmed, chairman of the Healthcare Devices Association of Pakistan.
Successive governments have failed to shore up multilateral or bilateral aid to meet foreign payments. However, a $6 billion International Monetary Fund (IMF) deal was restarted after Pakistan finally met conditions such as ending subsidies on fuel. But Islamabad has so far only received half the funds, with the last payment in August and a further review of the package ongoing. “All hopes are pinned on the release of the remaining amount,” Sohail said.
Pakistan often looks for financial rescue from allies, including China and Saudi Arabia, but analysts say the two countries are holding off until Pakistan gets the IMF green light. Prime Minister Shehbaz Sharif spoke with both his Chinese counterpart and the IMF managing director on Thursday. The Chinese premier informed Sharif that China stands with Islamabad in this difficult situation, according to Sharif. On Friday, the leader of Pakistan’s powerful military was in the Saudi capital, where he was reportedly pushing for financial relief.
