KARACHI: Foreign exchange reserves of State Bank have touched a 10-year low mark, and it may create serious problems for the country in making repayments to the IMF and meeting the widening current account deficit.

On April 12, 2013, reserves of the State Bank stood at $6.64bn, and these were much lower than the reserves held by the central bank in 2002-03.

Reserves were even lower in 2001-02 after Pakistan’s nuclear tests in 1998, seizure of reserves of overseas Pakistanis and removal of an elected government by the army. Those were the extraordinary situations when Pakistan was subjected to sanctions due to the nuclear test.

The current situation is much different than early years of the previous decade as when Pakistan is not under any sanctions, but experts say that mismanagement and lack of strategy have pushed the country closer to default.

The reserves are depleting fast and the burden of IMF repayments was too large as against the size of the reserves.

In 2002-03, reserves of the State Bank were to the tune of $9.525bn, much bigger than the current status of the reserves.

However, 10 years back the State Bank had been purchasing dollars from open market to accumulate reserves.

“To keep exports competitive, the SBP had to mop up excessive liquidity from foreign exchange market resulting in a continuous accumulation of the country’s foreign exchange reserves,” said the annual report of the State Bank.

This accumulation helped the local currency to appreciate by 3.7pc against dollar.

The reserves of the State Bank fell by $4.163bn during nine and half months of the current fiscal year, which is the fastest-ever decline in a decade.

There would be more pressure on reserves as repayments to IMF would be faster in the next two years. According to State Bank, till 2015 Pakistan will pay 3.497bn SDR (Special Drawing Rights) to IMF that would be approximately $5.3bn.

The State Bank’s reserves are $6.64bn and the current account deficit of nine months is over $1bn that may further widen in the next three months.

It shows the gravity of the situation regarding reserves of the State Bank.

Private banks hold over $5bn but the State Bank or the country as per law has no right to use these dollars of private account holders for any purpose.

Mismanagement was visible when the Central Bank reported in its Statistical Bulletin in January this year that during four-and-a-half years, remittances sent by overseas Pakistani stood at $48bn while local currency during almost the same period depreciated by 58pc against the US dollar. Only last year, the rupee deprecated by 8.8pc.

The poor figure of reserves is hitting the local currency hard and encouraging rupee holders to buy dollars or gold to save their reserves from melting on a day-to-day basis. “This situation is a warning or a threat to economy and requires immediate remedy, but it looks that for the first time, Pakistan would meet the default,” said a currency expert in the inter-bank market.