Finance The deepening forex crisis.

Pakistan remained in the grip of the foreign exchange crisis in 2022. Now, at the beginning of 2023, the situation has deepened further.

On January 6, forex reserves held by the State Bank of Pakistan (SBP) plunged to $4.343 billion, enough to cover just three weeks of imports, after the country repaid $1bn commercial loans of two UAE-based banks. Despite such a massive decline in the forex reserves, the rupee remained 'stable' in the interbank market. It closed at 228.15 to a US dollar on January 13, unchanged from January 12's closing of 228.14 per dollar - thanks to the SBP's policy of keeping the local unit in the 'oxygen tent'.

At the end of January 2022, the SBP had roughly $16.608bn forex reserves that kept falling for most of the year, primarily due to heavy external debt servicing and import financing.

'Billions of dollars' may, however, start coming in now from the international financial institutions and friendly countries Saudi Arabia, China and the UAE after the much-awaited release of the last withheld tranche of an ongoing $6bn International Monetary Fund (IMF) loan. The government may also seek another loan from the IMF and request the Fund to disburse the first tranche of it along with the withheld one.

The gap between the official interbank and the effective open market exchange rates has risen to Rs30 per dollar as the SBP artificially holds interbank exchange rates in a narrow band

Additionally, billions of dollars will also begin to come from the international community in the post-flood global financial support.

How many billions of dollars will exactly flow in 2023?

Very difficult to tell in advance. We need to keep counting as part of the expected funding may arrive in a few weeks or months, but part of it is due in three to five years. The post-flood support pledges from global financial institutions and countries exceed $10bn against post-flood requirements of $16.3bn. But 90 per cent of these pledges are in the form of loans, and only 10pc will come as aid.

Separately, Saudi Arabia has shown a willingness to place another $2bn with the SBP taking the total of its forex deposits with the SBP to $5bn. In addition, the Kingdom has also signalled to make medium to long-term investments worth $10bn in Pakistan, mainly in its petroleum sector.

The UAE is expected to provide $3bn financial help, including the rollover of its $2bn forex deposits with the SBP. Saudi Arabia has also decided to extend $1bn oil on deferred...

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