Pakistan’s foreign exchange reserves held by the State Bank of Pakistan have once again fallen below the $4 billion mark to $3.9 billion. On May 26, the forex reserves were barely above the psychological $4 billion level. Forex reserves have been continuously dropped from $9.8 billion held by the country’s central bank in the corresponding month in 2022.
Since January this year, Pakistan has been struggling with forex reserves– the level did not touch even $5 billion so far.
Much of Pakistan’s forex reserves have been used for external debt repayment, as negotiations with the International Monetary Fund for the much needed $6.5 billion financial assistance package hang in balance. Rising inflation and weakening currency have added to the problem. The Pakistani rupee has fallen by 28 per cent so far in the ongoing fiscal year.
The depleting forex reserves have also dealt a blow to the country’s economy, as several companies have started winding up operations. Imports have been slashed to preserve forex but this has also dented business sentiments as operations in the country become unviable. The stringent restrictions imposed by the State Bank of Pakistan, limiting outflows of the foreign currency have left the foreign companies scrambling to remit dividends to shareholders outside the country.
A few days ago, the International Air Transport Association (Iata) warned that with the rising level of blocked funds, airlines will not be in a position to fly in and out of the country. According to the industry body. Its blocked funds have risen to $2.27 billion in April 2023 from $1.55 billion in the corresponding month of the previous year– by 47 per cent jump.
“Airlines cannot continue to offer services in markets where they are unable to repatriate the revenues arising from their commercial activities in those markets,” the Iata added.
Pakistan is now among the top five countries accounting for Iata’s blocked funds, the News International reported. Virgin Atlantic, which launched its services two years ago, announced pulling out of Pakistan.
However, for the time being, the US Agency for International Development (USAID)’s $445.6 million assistance over a five-year period to Pakistan will come as some sort of a relief for the cash starved country. But experts see little hope of any long term solution.
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