Another red flag goes up as Pakistan’s forex reserves dip below $8 billion mark

Pakistan’s foreign exchange reserves have dipped below the psychological $8 billion mark to touch $7.8 billion during the week ended September 30. On September 23, the State Bank of Pakistan held forex of $8,005.9. In a week, the reserves dipped by $106 million.

The reduction in forex was due to the external debt repayment which also includes interest payments on Eurobonds.

Amid the financial crisis, Pakistan Finance Minister Ishaq Dar has requested China to rollover $2 billion in State Administration of Foreign Exchange (SAFE) deposits due in March 2023.

The country’s forex reserves are weakening despite the financial assistance that it received from the International Monetary Fund and its other friendly countries.

On Thursday, citing increased government liquidity and external vulnerability risks, ratings agency Moody’s Investor Service cut Pakistan’s sovereign credit rating by a notch to Caa1 from B3.

“The decision to downgrade the ratings to Caa1 is driven by increased government liquidity and external vulnerability risks and higher debt sustainability risks, in the aftermath of devastating floods that hit the country since June 2022. The floods have exacerbated Pakistan’s liquidity and external credit weaknesses and vastly increase social spending needs, while government revenue is severely hit,” it said in a statement.

Dar however hit back at the rating agency. He warned of a “befitting” reply if the agency did not reverse the downgrade of Pakistan’s sovereign credit rating, Pakistan Observer said.

The currency has been strengthening since Dar took over as the finance minister of the country, replacing Miftah Ismail.

On Friday it closed at 219.92 to a US dollar, gaining Rs 2.02.

Also read: Pakistan’s new Finance Minister will find it hard to clear the financial mess