Forex reserves on the road to recovery.

Byline: S. KAMAL HAYDER KAZMI

Economic growth is the only suitable means of enhancing the living standard of people while foreign exchange can be utilized as productive capital to enhance economic activities not only to help earn foreign exchange but also to help attain higher development of the economy, according to experts.

There has been a strong unidirectional causality from foreign aid to Gross Domestic Product (GDP). This assists to conclude that foreign aid has a significant contribution to economic growth.

Liquid Foreign Exchange Reserves In Pakistan (Million US$)

Period###Net Reserves With SBP###Net Reserves With Banks###Total Liquid FX Reserves

7-Jan-22###17,597.90###6,303.50###23,901.40

4-Feb-22###17,336.80###6,384.10###23,720.90

4-Mar-22###16,212.20###6,456.50###22,668.70

1-Apr-22###11,319.20###6,157.70###17,476.90

6-May-22###10,308.70###6,067.00###16,375.70

3-Jun-22###9,226.20###5,950.30###15,176.50

7-Jul-22###9,717.50###5,893.00###15,610.50

5-Aug-22###7,830.30###5,730.80###13,561.10

2-Sep-22###8,799.90###5,673.60###14,473.50

7-Oct-22###7,596.90###5,649.90###13,246.80

4-Nov-22###7,957.00###5,764.00###13,721.00

2-Dec-22###6,714.90###5,866.80###12,581.70

6-Jan-23###4,343.20###5,844.60###10,187.80

3-Feb-23###2,916.70###5,622.90###8,539.60

3-Mar-23###4,301.00###5,453.00###9,754.00

10-Mar-23###4,319.10###5,527.70###9,846.80

To improve the economic growth of developing states, they also identified that foreign aid is a significant source of finance but poor states are unable to reach the stage of take-off due to inadequate aid support.

Furthermore, increased foreign exchange reserve reduces the cost of liquidity risk. A few remarkable empirical studies are carried out to observe the relationship between economic growth and foreign exchange reserve. It is concluded that economic growth has both short-run and long-run relationship with the foreign exchange reserve. The foreign exchange reserve has a positive impact on economic growth, but high economic growth does not support increasing foreign exchange. Furthermore, the less developed countries set the goal to attain additional foreign currency to attain higher economic growth. Accumulation of foreign exchange reserves contributes to the economic growth of developing economies by increasing both the investment/GDP ratio and capital productivity.

Foreign exchange is an external stock of assets that is normally managed by the central monetary authority of a nation to influence the...