Alarm bells in Pakistan as reserves drop below $3 bn

Pakistans foreign exchange reserves held by the central bank decreased by 5.5 per cent or $170 million to $2.91 billion in the week ending February 3, the State Bank of Pakistan said on Thursday, deepening the economic woes of the crisis-stricken country, media reports said.

The country has $8.54 billion in reserves in total, including $5.62 billion held by commercial banks, The News reported.

The country is struggling to service extremely high levels of external debt, and has barely enough dollars to cover less than three weeks worth of imports, the report said.

The nation's already precarious economic predicament was made worse by the rapidly decreasing reserves. Pakistan held talks with the IMF to obtain assistance for containing a growing financial crisis that was made worse by a lack of foreign currency and skyrocketing inflation.

The rupee recently fell to historic lows after the government, in an attempt to meet IMF lending conditions, lifted currency controls that had been artificially supporting the currency.

Pakistan is dealing with a serious array of issues. Tens of millions of people were harmed by flooding last year, which cost $30 billion in damages. The country has been negatively impacted by inflation, the impact of Russia's war in Ukraine on food and energy prices, and political uncertainty, The News reported.

Pakistan has long-standing issues with its balance of payments. The government is hoping that it will quickly reach an agreement with the IMF mission over the terms of its $6.5 billion lending programme to unlock crucial funding from the IMF this time. But even if a loan tranche of $1 billion is unfrozen, this is only a bandage. More amounts are required if Pakistan is to avoid default.