SBP’s Forex Reserves Continue to Decline Amid Stalled Bailout Program

The State Bank of Pakistan (SBP) reported a continued decline in its forex reserves for the third consecutive week, reflecting the country’s difficulty securing external financing amid a stalled bailout program.

The SBP’s weekly bulletin indicated a $72 million decrease in reserves, dropping to $4.31 billion as of May 12 due to external debt payments. This amount would cover less than a month’s worth of imports.

Commercial banks hold net foreign reserves amounting to $5.62 billion, surpassing the central bank’s reserves by $1.01 billion. As a result, the country’s total liquid foreign reserves stand at $9.93 billion.

The reserves have stagnated over the past several months while Pakistan grapples with a severe balance of payments crisis. In addition, the nation’s $350 billion economy is in a state of upheaval due to financial difficulties and delayed agreements with the International Monetary Fund (IMF) that would facilitate vital funding to avert default risks.

Negotiations have been ongoing between the government and the Washington-based lender since January to recommence the $1.1 billion loan tranche, which has been in abeyance since November. This loan is part of a $6.5 billion Extended Fund Facility (EFF) established in 2019.

An agreement with the IMF would also open up other bilateral and multilateral financial channels for Pakistan to bolster its forex reserves.

Although the ninth review was scheduled for November 2022, a consensus has yet to be reached between the parties. The IMF has maintained that the government must secure “significantly more financing” for a successful bailout review, but local authorities insist that they have fulfilled the necessary criteria.

In addition to economic challenges, the South Asian nation is experiencing political turmoil, further impacting the economy. As a result, the markets remain volatile in light of the prevailing bleak situation.