Foreign exchange reserves decline due to persistent current account deficit: Moody

January 10, 2019 (MLN): Moody’s external vulnerability indicator (EVI) 5 reading for Pakistan has exceeded 160% for 2019, indicating that total public and private external debt due over the next year will be larger than foreign exchange reserves.

Foreign exchange reserves are on lower side in Pakistan owing to persistent current account deficit, whereas gross borrowing requirements are large in the country, threatening government to refinance debt and fund deficits affordably.

Reserves coverage of imports has also fallen and the total reserves are now worth less than two months of goods and services imports.

Tighter global funding conditions resulting in higher credit risk premia and/or domestic interest rates would quickly transmit to government finances in both countries – where debt affordability is already weak– owing to large gross borrowing requirements.

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