Pakistan, a country of over 200 million people, has been struggling with its economy for decades. The country’s foreign exchange reserves have been declining for years, and there have been concerns that it could run out of reserves in the near future. In this article, we will explore the factors that could lead to Pakistan running out of forex reserves and when this could potentially happen.
Foreign exchange reserves are the amount of foreign currency held by a country’s central bank. These reserves are important for a country’s economic stability as they can be used to pay for imports, repay foreign debts, and stabilize the exchange rate. Pakistan’s foreign exchange reserves have been declining for several years now. In 2016, the country’s foreign exchange reserves were at a record high of $24 billion. However, since then, these reserves have been steadily decreasing.
There are several factors that have contributed to Pakistan’s declining foreign exchange reserves. One of the major factors is the country’s trade deficit. Pakistan imports more than it exports, which means that it needs foreign currencies to pay for its imports. In the fiscal year 2019-2020, Pakistan’s trade deficit was $19.3 billion. This puts pressure on the country’s foreign exchange reserves as it needs to use these reserves to pay for its imports.
Another factor that has contributed to Pakistan’s declining foreign exchange reserves is the country’s debt burden. Pakistan has a large external debt, which it needs to repay in foreign currencies. In 2019, Pakistan’s external debt was $105 billion. This puts pressure on the country’s foreign exchange reserves as it needs to use these reserves to repay its external debt.
Furthermore, Pakistan’s remittances have been declining. Remittances are the money sent by overseas Pakistanis to their families in Pakistan. Pakistan is one of the top remittance-receiving countries in the world. In 2019, Pakistan received $21.8 billion in remittances. However, due to the COVID-19 pandemic, remittances have been declining. This puts pressure on the country’s foreign exchange reserves as it needs to use these reserves to pay for its imports.
Pakistan has been trying to increase its foreign exchange reserves by borrowing from international lenders such as the International Monetary Fund (IMF). In 2019, Pakistan received a $6 billion loan from the IMF. However, borrowing from international lenders also puts pressure on the country’s foreign exchange reserves as it needs to repay these loans in foreign currencies.
So, when will Pakistan run out of forex reserves? It is difficult to predict an exact timeline as there are several factors that could impact this. However, according to a report by the State Bank of Pakistan, the country’s foreign exchange reserves could fall to $6.4 billion by June 2021. This would be a significant decline from the record high of $24 billion in 2016.
If Pakistan’s foreign exchange reserves continue to decline, it could have several implications for the country’s economy. The country could face a shortage of foreign currencies, which could lead to a further decline in the exchange rate. This could make imports more expensive and lead to inflation. Furthermore, the country’s ability to repay its external debt could be impacted, which could lead to default.
In conclusion, Pakistan’s declining foreign exchange reserves are a cause for concern. The country’s trade deficit, debt burden, declining remittances, and borrowing from international lenders are all contributing factors. While it is difficult to predict an exact timeline, if the decline in foreign exchange reserves continues, it could have severe implications for the country’s economy. The government of Pakistan needs to take measures to address these factors and increase the country’s foreign exchange reserves to ensure economic stability.
