A decline in Pakistan’s foreign exchange reserves by $1 billion would suggest that the country is experiencing a decrease in its ability to finance imports, support the domestic currency, or service its debt.
The overall liquid foreign exchange reserves of the nation (including the SBP and commercial banks) were $9.453 billion as of January 13, 2023, down from $10.4436 billion, showing a loss of $990.4 million in a week, according to the State Bank of Pakistan’s weekly report released on Thursday.
The SBP’s foreign exchange reserves decreased by $923 million during the week under review, from $4.601 billion a week earlier to $3.678 billion by the conclusion of the previous week. The SBP’s foreign exchange reserves are currently at their lowest level since February 2014 and can only support imports for three weeks.
This can be caused by a variety of factors such as increased demand for foreign currency, decreased exports, or increased capital outflows. In the case of Pakistan, historically, a major reason for the decline in forex reserves is the balance of trade deficit.
Pakistan has been importing more than it exports, and this leads to depletion in the foreign exchange reserves. Additionally, debt servicing and other external liabilities also play a role in the decline of reserves. A decline in reserves can also be a sign of economic troubles and may lead to a decrease in investor confidence.
There could be several reasons for a decrease in foreign exchange reserves in Pakistan. Some possible factors include:
Capital outflows: If investors are withdrawing their money from the country, it can lead to a decrease in foreign exchange reserves.
Trade deficit: If the value of imports is greater than the value of exports, it can lead to a decrease in foreign exchange reserves.
Debt repayment: If Pakistan is repaying its external debt, it can lead to a decrease in foreign exchange reserves.
Currency depreciation: If the Pakistani rupee depreciates against other currencies, it can lead to a decrease in foreign exchange reserves.
