Did fuel imports put the rupee in a tailspin?

USD 6.2 billion spent on fuel imports at peak prices in May and June could be the reason why the rupee is in a tailspin.

By Mohammad Ali

ISLAMABAD: Replenishing fossil fuel reserves at peak prices in the months of May and June 2022 cost Pakistan USD 6.2 billion, deepening the sever balance of payment crisis, Independent Pakistan can report.

Official data released by Pakistan Bureau of Statistics shows that the country imported POL products including RLNG and furnace oil to the tune of USD 3.6 billion in June 2022 and USD 2.6 billion in May 2022.

This hefty bill, totalling to USD 6.2 billion, eroded the country’s sparse foreign exchange cushion and putting pressure on the rupee. This may explain in part why the rupee is in a tailspin right now.

Among other reasons would be the political uncertainty and debt repayment needs. The net impact of all these developments is that the rupee is hitting historic lows against the greenback every day.

Incumbent ministers of the Pakistan Democratic Movement (PDM) government have claimed that the country possesses motor spirit and diesel for two months period. This suggests the authorities decided to build up fossil fuel stocks at a time when international prices were peaking and the country was facing a severe scarcity of foreign exchange reserves.

According to the State Bank of Pakistan (SBP) data, Pakistan’s total liquid foreign reserves stood at USD 15.2 billion as of July 15, 2022. The break-up of the foreign reserves position shows that the foreign reserves held by the State Bank of Pakistan stood at USD 9.3 billion while net foreign reserves held by commercial banks were USD 5.9 billion.

During the week ended on July 15, 2022, SBP’s reserves decreased by USUSD 389 million to reach USD 9.3 billion mainly due to external debt repayments.

In August 2021, the foreign exchange reserves held by the SBP were standing at USD 20.03 billion but have now decreased to USD 9.3 billion on July 15, 2022, indicating a shrinkage by 11.7 billion in last 11 months period.