The balance of payments (BoP) statistics released by the State Bank of Pakistan for the period July 2023 to January 2024 reveal a positive picture. Reserves have increased significantly from $4.6 billion at the start of 2023-24 to $8.3 billion as of end-January 2024. However, they are still relatively low and provide import cover for just over one-and-a-half months.

The surplus in the balance of payments in the seven months was $2.4 billion. In addition, the net inflow of $1.3 billion from the IMF, as part of the Stand-by facility, has contributed to the overall build-up in reserves of $3.7 billion.

A comparison with the balance of payments in the corresponding period of 2022-23 shows clearly the extent of improvement this year. During that period, foreign exchange reserves fell by over $7 billion, down to the perilous level of $3.2 billion. This was not even adequate to provide import cover for even one month and led subsequently to a drop in the value of the rupee of 7 % in the next five months.

There is need to determine clearly the reasons for the improvement in the balance of payments position. One of the major factors is the reduction in the value of imports of 11%, despite the fact that imports were already depressed last year.

Clearly, the SBP has continued the policy of physically restricting imports. This is demonstrated by the fact that the rupee has remained nominally stable. A big depression of 11% in imports would not have been possible without a large decline in the value of the rupee in the absence of physical controls.

Further, imports have not fallen, more or less, across the board. The biggest fall has occurred in the import of petroleum products of over 22%. However, domestic consumption has fallen less by 11%. Therefore, it remains a mystery as to how such a big quantum reduction in petroleum products has been achieved. The imports of transport and electrical equipment have also remained at low levels.

On the inflows side, there........

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