Pakistan’s cash-strapped government has been unable to restart its halted bailout programme, causing the State Bank of Pakistan’s (SBP) foreign exchange reserves to drop for a third consecutive week.
The SBP reported that its reserves dropped by $72 million, to $4.31 billion, as of May 12 (which is adequate for slightly less than a month’s worth of imports), all owing to payments on external debt.
The country’s total liquid foreign reserves are $9.93 billion, with commercial banks holding $5.62 billion (or $1.01 billion more than the central bank).
In the midst of Pakistan’s severe balance of payments problems, the reserves have been stuck in a narrow band over the past few months.
SBP reserves may increase with IMF deal
The economy, worth $350 billion, is in disarray due to mounting financial problems and the postponement of a deal with the International Monetary Fund (IMF) that would release desperately needed cash.
As part of an agreed upon 2019 $6.5 billion Extended Fund Facility (EFF), the government has been in discussions with the Washington-based lender since the end of January to restart the $1.1 billion loan tranche that has been on hold since November.
In addition to bolstering Pakistan’s foreign exchange reserves, an agreement with the IMF will open up other bilateral and multilateral financing possibilities.
The parties were supposed to settle their differences in time for the ninth review in November 2022.
The IMF has been demanding that the government obtain “significantly more financing” before the bailout review can proceed, but the local authorities believe they have already fulfilled all of the criteria.
Markets remain nervous and the outlook is bleak as the South Asian country struggles through both economic and political difficulties.
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