Pakistan's central bank sends SOS to PM Sharif on country's dwindling forex reserves
Jul 09, 2022
Islamabad [Pakistan], July 9 : As Pakistan's economy continues to remain in shambles, the country's central bank State Bank of Pakistan has given out an SOS call to Prime Minister Shehbaz Sharif-led government of its waning foreign exchange reserves and its negative impact on country's ability to import.
The bank has warned the government that if the dwindling foreign exchange reserves are not tackled it will become hard for the country to sustain imports from other nations, local media reported.
This SOS call comes amid an acute decline in the bank's Forex reserves. SBP's Forex reserves fell to USD 8.24 billion on June 17. This trend of diminishing reserves is likely to continue due to the pressure of debt on the country, reported media portal, Asian Lite.
In order to facilitate the preservation of the decreasing Forex, SBP has advocated a temporary ban on import of all non-essential goods. The bank has apparently stressed the risk of increasing fuel imports in view of the energy security of the country.
The total petroleum import in Pakistan was USD 9.7 billion during the fiscal year 2020-21. However, global inflation has pushed Pakistan's import bills to more than USD 14.46 billion in July-April period of the current fiscal year. With the increase in imports, the country's Forex position tightened.
As Pakistan has also risen its energy imports the Forex reserves are deteriorating to an extent of posing a threat to country's ability to import fuel.
The Pakistani government has already withdrawn many subsidies on fuel, which resulted in a sharp increase in domestic energy prices. According to SBP, the Ministry of Energy and Petroleum should be asked to formulate and implement stringent policy measures to contain the demand for energy products, as per the media portal.
To add insult to injury, the depreciating Pakistani Rupee (PKR) is further compounding the problem. Its steady depreciation continues with the exchange rate reaching from PKR 199/USD on June 6 to PKR 207/US D on July 6, 2022.
It is a vicious cycle that Pakistan is trapped in. It is worth noting that depreciating currency leads to a rise in fuel import bills which makes the fiscal position even weaker. On currency, SBP has recently attempted some large-scale interventions in the market. However, its limited capacity to control the exchange rate has yielded only paltry returns.
