Pakistan's Foreign Exchange Reserves Plummet to Alarming Low

Pakistan's foreign exchange reserves, held by the State Bank of Pakistan (SBP), have plummeted by $217 million in a week, reaching a meager $7.2 billion as of November 24, 2023. This alarming decline in the country's foreign currency holdings raises concerns about its ability to fulfill its external obligations.

The erosion of reserves is attributed to a confluence of factors, including the widening current account deficit, the weakening Pakistani rupee against the US dollar, and the exodus of foreign investment. The current account deficit, which gauges the difference between imports and exports, has been steadily expanding, straining the country's foreign exchange reserves.

The depreciation of the Pakistani rupee against the US dollar has further compounded the issue. The rupee has experienced significant value erosion in recent months, making imports more costly for Pakistan. This has also triggered an outflow of foreign investment, as investors seek more secure havens for their funds.

The dwindling foreign exchange reserves have raised apprehensions about Pakistan's capacity to honor its external obligations, including debt repayments. The country bears a substantial burden of external debt, and a decline in reserves could hinder its ability to meet these commitments.

The Pakistani government is implementing measures to address the situation, including strategies to curb imports and boost exports. However, the effectiveness of these measures remains to be determined. The decline in foreign exchange reserves poses a serious challenge for Pakistan, and the government must take decisive action to tackle the underlying issues.

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