Pakistan’s foreign exchange reserves increased by 65% to $12 billion in fiscal year 2019-20, compared to $7.3 billion in the previous year, according to the central bank data released Thursday.
Pakistan borrowed $1 billion as GOP loan disbursement from China and returned $231 million or 23% of that amount to repay foreign debt in the week ending July 3. After adjusting that amount, the country’s net dollar reserves increased by $811 million last week.
The increase in dollar reserves in fiscal year 2019-20 can be attributed to dollar inflows caused by the signing of a $6 billion bailout with the International Monetary Fund. This includes $725 million from the World Bank, $500 million from the Asian Development Bank, $500 million from Asian Infrastructure Investment Bank and $1 billion from Chinese banks.
The IMF programme opened more doors for Pakistan as the World Bank, ADB and AIIB also pledged support. According to the IMF, the programme was supposed to unlock funding of $38 billion from multilateral donors.
Pakistan’s depleting dollar reserves were one of the main challenges for the Pakistan Tehreek-e-Insaf, when it came into power in August 2018. Within its first six months, the PTI government saw the dollar reserves falling to $6 billion, barely enough to pay for two months of imports. To tackle this challenge, PM Khan’s government signed the $6 billion bailout with the IMF.
The dollar reserves doubled from its lowest point in 2018 to 12 billion this year. The dollar account turned to a surplus in October 2019. However, going to the IMF comes at a cost and steps were taken to choke the economic growth, such as reduction in imports, rupee depreciation and increase in interest rates that made the borrowing expensive.
In the first nine months of the last fiscal year, the loss in our dollar account was reduced by 73% and we were again in surplus in May.