Pakistan has made required adjustments to put the economy on the path to sustainable growth. It is hurting the common people badly but still financial indicators are deteriorating because of national and international reasons. The country’s ability to earn dollars is consistently decreasing. It raises doubts about the government’s claim of stability and its ability to resolve chronic public issues. The gravity of the situation has been compounded by recent floods, which affected people in a two-thirds part of the country.

Pakistan’s foreign exchange reserves slightly rose by $4 million to $13.250 billion during the week ended on October 14. However, the foreign reserves held by the State Bank of Pakistan remained flat at $7.597 billion as compared with the previous week. The SBP’s reserves cover only one month’s worth of imports. Reserves of commercial banks increased by $4 million to $5.654 billion. The central bank’s reserves have plunged to the lowest level in three years despite the country receiving a $1.2-billion tranche from the International Monetary Fund (IMF) in September.

Foreign Direct Investment (FDI) into Pakistan has plunged by 47pc during the first quarter (July – September), according to data released by the State Bank of Pakistan. It said that the FDI fell to $253 million during the first quarter of the current fiscal year as compared with $479 million in the corresponding quarter of the last fiscal year. The inflows recorded a 31.7pc decline to $395 million during the quarter under review as compared with $579 million in the same quarter of the last year. On the other hand, the outflow under the FDI significantly increased by 42.5pc to $142 million during July – September 2022/2023, as compared with $99.6 million in the same period of the last fiscal year. The total foreign private investment into the country fell by 36.3pc to $241.3 million during the quarter under review when compared with $379 million in the corresponding quarter of the last fiscal year. The portfolio investment in the capital market registered a massive decline in outflow. The outflow of portfolio investment recorded $12.1 million during the first quarter of the current fiscal year as compared with the outflow of $100.5 million in the same quarter of the last year.

The foreign public investment under the head of debt securities recorded an outflow of $18.2 million during the first quarter of the fiscal year as compared with inflow of $980 million in the same quarter of the last fiscal year. The total foreign investment including private and public recorded a decline of 83.6pc to $223 million during the quarter as compared with $1.36 billion in the same quarter of the last fiscal year.

Remittances sent home by overseas Pakistanis also slowed down to a four-month low at $2.44 billion in September. The State Bank of Pakistan reported that the receipts contracted 10.5pc in September compared to inflows of $2.72 billion in the previous month. The remittances were 12.3pc lower compared to the same month of the previous year when they stood at $2.78 billion. Reports said a section of non-resident Pakistanis had apparently opted to send remittances through the open market and unofficial channels like Hundi and Hawala which offer a much higher exchange rate. As a result, the inflows through official channels decreased. The price of the US dollar was higher by Rs10-12 in the open and black markets compared to the rate offered by banks for most of September. With the cumulative inflow of $7.7 billion in July-September FY23, the remittances decreased by 6.3pc as compared to the same period of last year.

Pakistan’s exports dropped by 3.83pc in September in comparison to August, while imports dropped by 13.21pc. According to the Pakistan Bureau of Statistics (PBS), exports in September amounted to $2.38 billion. Exports in September were 3.83pc lesser than in August, while 0.91pc lower than in September 2021. The exports from July to September went up by 1.84pc, which amounted to $7.12 billion. However, imports in September dropped by 13.21pc in comparison to August and amounted to $5.26 billion. The import dropped by 19.72pc in comparison to September 2021.

After assessing the situation, global ratings agency Fitch cut Pakistan’s sovereign credit rating by a notch to ‘CCC+’ from ‘B-’, citing further deterioration in the country’s external liquidity and funding conditions and a drop in foreign exchange reserves. Recent widespread floods in Pakistan have further weakened the country’s economy, already in turmoil with a rising current account deficit, inflation above 20pc and a sharp depreciation of the currency. The agency said the floods caused more than $30 billion damage to the economy and they would undermine Pakistan’s efforts to rein in twin fiscal and current account deficits. On the policy front, Fitch said it assumed that Pakistan would continue to receive disbursements under its International Monetary Fund programme, but risks to it have risen. Earlier, Moody’s Investor Service also cut Pakistan’s sovereign credit rating by one notch to Caa1 from B3, also citing increased government liquidity and external vulnerability risks following the devastating floods.

According to a report, Pakistan’s dollar inflows in the shape of loans and grants decreased by 30pc to $2.23 billion in the first quarter (July-September) of the current fiscal year. Pakistan had acquired $3.2 billion in loans and grants in the first quarter of the last financial year. It is a matter of concern that Pakistan’s ability to earn dollars is decreasing despite an overhaul of the economy. The government has enforced a market-determined exchange rate and withdrew all subsidies on electricity and oil. Inflation is at its peak. Still the country is struggling to meet its needs. Policymakers should reassess the situation.