The country’s biggest economic issue today (in immediate terms) is itsfalling foreign exchange reserves. Nothing else. It must shore up in thenext few months to not see a situation like Sri Lanka in Pakistan.
There are two ways to gauge the reserves health – one is to see the importcover – that is to measure how much more the country can sustain withoutdefaults. The other is Net International Reserves (NIR) – it gets the pulseon the quality of reserves and its usability. IMF and other lenders look atthese two measures very closely.
In terms of import cover, today the country is barely covering 7-8 weeks ofimports on SBP reserves.
The situation was similar in Jun 18 when the country was covering 8-9 weeksof imports, and in June 2013, when the import cover was 7-8 weeks. 2008 wasno different. Thus, none of the successive four governments have notinherited a balance of payment crisis kind of situation.
One can argue on the reasons behind the crisis – like in PPP term (FY09-13)oil prices averaged at $92/barrel while in the PMLN term oil pricesaveraged at $68/barrel.
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Thus, the PMLN was lucky and the country wasted earned reserves by notincreasing interest rates and keeping currency artificially overvalued.
Source:link