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When will pakistan forex reserves dryup?

Pakistan has been struggling with its foreign exchange reserves for many years. The country’s reserves have been declining rapidly in recent years, and there are concerns that they could dry up completely in the near future. In this article, we will explore the reasons behind this decline and try to answer the question of when Pakistan’s forex reserves will dry up.

Pakistan’s Foreign Exchange Reserves

Foreign exchange reserves are a crucial component of any country’s economy. They are used to pay for imports, service debts, and stabilize the currency’s value in the international market. Pakistan’s foreign exchange reserves have been declining for many years now, and the situation has become more critical in recent years.

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Pakistan’s forex reserves reached an all-time high of $24.5 billion in October 2016. However, since then, they have been declining rapidly. According to the State Bank of Pakistan, the country’s forex reserves stood at $12.8 billion as of June 2021, which is less than half of the 2016 peak.

Reasons behind the Decline in Forex Reserves

There are several reasons why Pakistan’s forex reserves have been declining rapidly in recent years. The primary reason is the country’s widening current account deficit. Pakistan’s current account deficit reached a record high of $20 billion in the fiscal year 2017-18, and it has remained high since then. The current account deficit is the difference between a country’s imports and exports, and a high deficit means that the country is importing more than it is exporting.

Pakistan’s imports have been growing rapidly in recent years, driven by increased demand for energy and raw materials. The country is heavily dependent on imported oil and gas, and the rising prices of these commodities have put a strain on the country’s foreign exchange reserves. Additionally, Pakistan has been investing heavily in infrastructure projects, such as the China-Pakistan Economic Corridor (CPEC), which has also increased the country’s import bills.

Another reason for the decline in Pakistan’s forex reserves is the country’s high debt burden. Pakistan has a large external debt, and the country has been borrowing heavily from international lenders to finance its development projects. The debt servicing costs have put a strain on the country’s foreign exchange reserves, as Pakistan needs to pay back the loans in foreign currency.

When Will Pakistan’s Forex Reserves Dry Up?

Given the current situation, it is difficult to predict exactly when Pakistan’s forex reserves will dry up. However, if the current account deficit remains high, and the country’s imports continue to grow, it is likely that the reserves will deplete further in the coming years.

The situation could also worsen if Pakistan’s exports do not pick up. Pakistan’s exports have been stagnant for many years, and the country has not been able to diversify its export base. This means that Pakistan is heavily dependent on a few products, such as textiles, which are susceptible to fluctuations in global demand.

Moreover, if Pakistan’s foreign investors lose confidence in the country’s economy, they may pull out their investments, further depleting the forex reserves. The country’s political instability, security concerns, and weak institutions have deterred foreign investors in the past, and it is possible that they may do so again.

Conclusion

Pakistan’s forex reserves have been declining rapidly in recent years, and the situation has become more critical in recent years. The country’s widening current account deficit, high debt burden, and stagnant exports are the primary reasons for this decline. It is difficult to predict exactly when Pakistan’s forex reserves will dry up, but if the current situation persists, it is likely that the reserves will deplete further in the coming years. The government needs to take urgent steps to address the root causes of the problem, such as promoting exports, reducing the debt burden, and attracting foreign investment. Failure to do so could have severe consequences for the country’s economy and its people.

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