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Pakistan’s Energy Shortages Looming as SBP Reserves Dip to $4 Billion

With the State Bank of Pakistan’s (SBP) reserves at approximately $4 billion, there are concerns that widespread shortages of essential goods, including energy products, could occur if there are no inflows of dollars with the International Monetary Fund (IMF) on board. According to reports, the country currently has stocks of around 30 days of diesel and 18 days of petrol, with plans for further imports by refineries and Oil Marketing Companies (OMCs) in place. However, as the opening of letters of credit (LCs) for these imports becomes increasingly difficult, there are concerns that shortages could occur in as little as 2-4 weeks.

The situation is further complicated by the fact that with every passing day, LC opening is becoming more difficult, with top executives of petroleum companies having to use their influence to establish LCs. While the government may be able to open LCs for Pakistan State Oil (PSO) for some time, which covers 45 percent of the country’s needs, shortages are still likely to occur if the SBP’s reserves are not shored up.

In the worst-case scenario, shortages could begin in March and worsen in April, which is a peak season for diesel as the wheat cutting starts. This could lead to staple food shortages a few months later, as well as long hours of load shedding and long lines at petrol stations. Additionally, many businesses in the retail and manufacturing sectors could be affected.

In conclusion, Pakistan must arrange dollars or face shortages as the country’s SBP reserves dip to $4 billion. The country’s reliance on imports, especially energy products, makes it susceptible to fluctuations in the availability of dollars. The government should take immediate steps to address the issue and find ways to increase the inflow of dollars to the country to avoid the looming shortages.