AGENCIES

January 9: The foreign exchange reserves of Pakistan's central bank have plunged to an eight-year low as the country grapples with economic crisis, according to media reports.

Pakistan finds itself strapped for cash as money expected to come in under an International Monetary Fund (IMF) programme has been delayed. Its foreign exchange reserves now barely cover a month of imports, most of which are for energy purchases, Al Jazeera reported.

The South Asian nation’s foreign currency exchange took a nosedive to $5.6 billion, posing a “serious challenge” for the country in financing imports.

Coupled with another $5.8 billion held by commercial banks, the nation has $11.4 billion in reserves -- enough to pay for just three weeks of imports, AFP reported citing traders and economists.

According to the BBC, Pakistan's government has ordered shopping centres and markets to close early every day as the country faces an economic crisis.

Defence minister Khawaja Asif reportedly said that the measures will save the South Asian nation around 62 billion Pakistani rupees ($274.3 million).

Most of Pakistan’s electricity is produced using imported fossil fuels, including liquefied natural gas, prices of which have skyrocketed in recent months, Al Jazeera reported.

“Global energy prices jumped last year, putting further pressure on the country's already dwindling finances. To pay for those energy imports the country needs foreign currency, especially US dollars,” the BBC added.

According to the AFP, Pakistan's economy has crumbled alongside a simmering political crisis, with the rupee plummeting and inflation at decades-high levels, but devastating floods and a global energy crisis have piled on further pressure.

“The latest data from the central bank released overnight -- for the week ending December 30 -- show the country has half the foreign exchange reserves it held a year ago. Servicing foreign debt and paying for crucial commodities such as medicine, food and energy are among the chief concerns.”

Thousands of shipping containers are held up at a Karachi port because banks have been unable to guarantee foreign exchange payments, the French news agency further reported.

Successive governments have failed to shore up multilateral or bilateral aid to meet foreign payments, although a $6 billion International Monetary Fund deal was restarted after Pakistan finally met conditions such as ending subsidies on fuel, added AFP.

According to Al Jazeera, the Pakistan government has tried to stabilise the economy by containing imports and decades-high inflation. A quickly depreciating currency has made imports more expensive while consumer prices have risen 25 percent year-on-year in the first half of the fiscal year (July 1 to December 31).

“Pakistan is recovering from last year’s catastrophic floods, which submerged more than a third of the country and caused widespread devastation and major financial losses.”

The country is the eighth most vulnerable country to extreme weather caused by climate change, according to the Global Climate Risk Index compiled by the environmental NGO Germanwatch.

Another South Asian country Sri Lanka is reeling under its worst financial crisis which started in 2019, resulting in mass protests last April due to which the prime minister had to resign and the president had to flee from the palace in July.

“Sri Lanka’s collapse should be a wake-up call to other countries, highlighting the perils of sovereign debt in an era of geopolitical competition,” writes Tamanna Salikuddin in an analysis published by USIP.