Despite its fast-shrinking foreign exchange reserves which will inhibit imports of essential fuel, cooking oil and pulses, Pakistan says it will not be in dire straits like neighbouring Sri Lanka and that it has a “strategy” to boost its reserves.
“No chance of default, none,” said Pakistan’s finance minister Miftah Ismail in an interview with Al Jazeera. “Yes we have a strategy to increase our reserves and you will see that they will start to increase.”
Ismail, a member of the PML-N which successfully spearheaded a vote to remove the Imran Khan-led government, was recently in the US to meet with the International Monetary Fund (IMF) to push to resume IMF’s $6bn loan programme to the country, a key source of funding that keeps the economy running. The three-year programme was started in 2019 but this is the third time that it has been suspended.
Foreign exchange reserves have dropped to a 28-month low in Pakistan to below $11bn, barely enough to cover imports for the next two months. The last time forex reserves were below this level was in December 2019.
But economists are not too alarmed as the country has dealt with such near crises several times in the past years.
“It is not just two events, it has happened at least 13 times during the last 50 years,” said Atif Mian, economics professor at Princeton University, in a talk earlier this month on Pakistan’s economy which was broadcast online.
Pakistan has this chronic balance of payment problem because for years its imports have outstripped its exports, he said.
For instance, in the first nine months of the current financial year that started in July, Pakistan accrued a negative trade deficit in goods and services of $33.28bn, government data show. It exported goods and services worth $28.85bn and imported $62.13bn worth of goods and services. The current account deficit for the period had jumped to $13.17bn, up from $275m for the same period of last year.