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LAHORE: As the foreign exchange reserves of the central bank have fallen to the critical level of $8.39 billion due to heavy debt servicing and other payments, reporting a record drop of over $2 billion in just five weeks, the Businessmen Panel (BMP) of the Federation of Pakistan Chambers of Commerce & Industry has scrambled over securing dollar inflows, calling for managing this financial crisis amidst widening trade deficit along with dried up dollar inflows.

FPCCI former president and BMP Chairman Mian Anjum Nisar said that the reserves’ position is critical for Pakistan which is desperately seeking dollar inflows to meet its balance-of-payments needs. A low level of reserves has caused severe pressure on its currency market with the rupee witnessing its worst monthly performance in July in over 50 years.

“We require a combination of an improvement in trade deficit, export proceeds and IMF’s recent statement on the country’s successful completion of all prior actions to halt a slide that saw the rupee close in on the 240 level in the inter-bank market two weeks back, which is now appreciating.”

He said that country’s total liquid foreign exchange reserves have plunged to $13.56 billion in the first week of August, depicting a decrease of $2.2 billion during one month period of this fiscal year. The recent decline in reserve is due to massive scheduled external debt servicing. The reserves also reached below the $14 billion mark followed by continuous debt payment. The foreign exchange reserves fell another $190 million, clocking in at an alarming level of $8.39 billion during the week ended on July 29, 2022.

Quoting the data released by the SBP, he said total liquid foreign reserves held by the country stood at $14.21 billion while net foreign reserves held by commercial banks clocked in at $5.82 billion.

The urgent task that needed to be taken up was foreign exchange reserve management and for this purpose the major focus should be on negotiation with the IMF, he said. Strong relations with the US, China, and Saudi Arabia are very important in determining the outlook of foreign flows to the country and roll over of maturing debt. Moreover, initiatives for overseas Pakistanis should be prioritized and proper channel flows for remittances should be maintained to keep foreign reserves afloat.

He believed that the currency should be allowed to remain at its market determined level, and take any pressure from the external account. FPCCI former president said that the payment for settlement of the Reko Diq case, increasing current account deficit and delays in debt roll over resulted in rapid erosion of foreign exchange reserves, he said and added that fast depletion in reserves weighed on the rupee.

The BMP Chairman said that with the delay in the revival of the IMF programme and falling foreign currency reserves, the Pakistani rupee has hit an all-time low against the dollar, crippling the country’s economy further.

It is good news that the State Bank of Pakistan said that external debt repayments are expected to moderate during the next three weeks of August. In fact, around three-fourth of debt servicing for the month of August was concentrated during the first week.

The country for the last few months is facing a serious crisis of foreign exchange due to a record $39.58 billion trade deficit followed by a $72 billion import bill in the last fiscal year (FY22).

Mian Anjum Nisar asked the government to make serious efforts to build the sliding foreign exchange reserves. It is appreciable that Pakistan has also reached staff level agreement with IMF and the board is likely to release $1.1 billion as tranche of Extended Fund Facility (EFF) end of this month.

Copyright Business Recorder, 2022

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