Pakistan’s foreign reserve growth may plateau — assessment
Pakistan’s foreign exchange reserves, which had been recovering since July 2023, may be approaching a peak level, while the pace of their growth has already slowed. Pakistani business and economics journalist Khurram Husain wrote this in a column for Dawn.
According to his data, in December 2022, the country’s reserves were sufficient to cover only 13% of debt payments planned for the following 12 months and three weeks of imports. They now cover nearly 70% of scheduled repayments over a year and more than three months of imports.
The pace of growth is slowing
The author notes that reserves continued to grow over the past seven months, but the pace of this growth declined. The average 12-month increase in reserves remained at $5.7 billion through May, fell to $3.9 billion in June, and to $2.7 billion in July.
Despite an increase in liquid reserves of about $1 billion from January to July, the import coverage ratio only slightly exceeded 3.1 months. In Husain’s view, this indicates a smaller effect from building up reserves amid growing import needs.
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Possible sources of replenishment
The author also said it remains unclear whether the $3 billion recently raised through a eurobond auction will remain in the country or be used to repay bilateral debt. In the latter case, this would improve the debt payment coverage ratio but could increase pressure on import coverage.
Among possible sources of further reserve replenishment, Husain named financing from the US Exim Bank, a credit line from the US Treasury Department, or a more favorable extension of the maturities of existing bilateral obligations. He also noted that Saudi deposits are due to mature in December.
The author considers high oil prices, difficulties in procuring liquefied natural gas, and tensions around the Strait of Hormuz and the Bab el-Mandeb Strait to be additional risks. In his assessment, at economic growth rates of 6% or higher, Pakistan’s existing reserves would last for less than 12 months.
