Pakistan — Rising foreign exchange could increase export opportunities

Rising foreign exchange reserves allows more Pakistani importers to obtain US dollars and pay for exports, including from Australian firms. Foreign exchange reserves rose to US$11 billion in January 2020, up from US$6.4 billion in June 2019. This is now sufficient to cover 2.5 months of imports, an improvement from 1.5 months in 2019, albeit still below the IMF’s minimum adequacy level of 3 months (Chart).

Aided by ongoing progress on IMF-led reforms, Pakistan has unlocked substantial US dollar funding from the IMF and other multilateral and bilateral development partners. The central bank’s commitment to flexible exchange rate policies—the Pakistan rupee has fallen more than 30% against the US dollar since January 2018—prevents further drain on reserves from currency intervention and supports export competitiveness.

Easing foreign exchange restrictions also offers greater access to foreign currency, particularly for small and medium-sized enterprises. In November 2019, the central bank allowed banks to make advance payments up to US$10,000 per invoice on behalf of manufacturing and industrial companies for the import of raw materials and spare parts.

As access to foreign exchange improves, Pakistan’s large infrastructure development needs could boost demand for Australian energy, resources and building and construction materials. Pakistan’s growing population could increase opportunities for Australian agricultural exports, which amounted to $103 million in 2018-19. Opportunities also exist to expand education exports, which contributed the majority of Australia's $812 million in services exports to Pakistan in 2018-19. Almost 11,000 Pakistanis began study at Australian higher education institutions in January 2020, continuing a long, rising trend.

Fig 6 Pakistan Foreign Exchange Reserves And Import Coverage