Pakistan faces risk of default, forex reserves plummet to lowest level

Pakistan's foreign exchange reserves continued their declining spree, plunging by $584 million to reach $6.1 billion as of Dec 16, the State Bank of Pakistan(SBP) announced on Thursday. According to the central bank’s data, this is the lowest level of reserves since April 2014. As per Dawn report, in the last 12 months, SBP’s reserves have declined by $11.6bn. In Dec 2021, the central bank’s reserves were $17.7bn which now stand at $6.1bn, barely enough to cover a month’s imports. Net foreign reserves held by commercial banks now stand at $5.9bn, meaning the country’s total liquid foreign reserves are now $12bn.

With no clarity on when the International Monetary Fund will complete its ninth review, several experts including Pakistan’s previous finance minister, Miftah Ismail, claim Pakistan still faces the risk of default. Pakistan's rupee has shed nearly 26% since the start of the year, hitting its weakest level on record in September, due to falling reserves and the higher import bill. Meanwhile, Finance Minister Ishaq Dar say Saudi Arabia and China have  agreed to support Pakistan’s reserves, so far no confirmation has been received from both countries. Experts believe injections from friendly countries may not materialise without the release of IMF’s tranche.