Pakistan’s foreign exchange reserves at $6.72 billion – lowest in almost four years — mostly comprises borrowed money from other countries and multilateral agencies. Its own reserves are perilously close to nil. The major chunk of the reserves came as assistance from other countries including China and Saudi Arabia besides the International Monetary Fund (IMF).
An amount of $2.3 billion has come from China while Saudi Arabia has offered $3 billion. The IMF has also agreed to revive the financial assistance programme. It has already provided $1.2 billion. This implies that borrowed money makes up for the country’s forex reserves kitty.
“The qualitative difference between the reserves’ situation in 2019 and now is that at that time, whatever we had was our own. Today, each dollar we have is borrowed; we are currently maintaining negative reserves. So we are now at the mercy of certain friendly countries for our survival. If they pump in more dollars, we will survive the crisis and not default,” Dawn quoted Fahad Rauf, head of research at Ismail Iqbal Securities as saying.
The newspaper added that Pakistan may receive planned foreign assurances that will help meet the country’s debt repayment obligations this year. “But what happens in the next fiscal year and after? The unfortunate reality is that we as a nation are not ready to accept the precariousness of our situation and continue to live beyond our means,” it noted.
While the International Air Transport Association (IATA) named Pakistan as one of the top five countries in the world to be blocking airline funds for repatriation and using the same to boost forex reserves, several foreign companies are equally worried about repatriation of their funds.
Though Islamabad has managed to avert a default of a $1 billion against international sukuk or a Shariah bond earlier this month, the State Bank of Pakistan, its central bank, held back payment of $225 million as repatriation of airline funds.
In its statement, Fitch said that the downgrade reflects further deterioration in Pakistan’s external liquidity and funding conditions, and the decline of foreign exchange reserves. This is partly a result of widespread floods, which will undermine Pakistan’s efforts to rein in twin fiscal and current account deficits.
An analyst dealing with South Asia told India Narrative that the economic crisis will linger “until bold reforms are implemented.” “But that is not going to be the case and now with general elections inching closer, policies may be more towards populism. We saw how Miftah Ismail (Pakistan’s former finance minister) was removed despite being able to steer away from a default,” he said earlier.
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