India’s Forex Reserves Dip While Pakistan Celebrates Increase – What’s Behind the Trend? - Read Now 

Recently, India, being one of the world's top five economies, suffered a downtrend in the foreign exchange reserves, when its neighbour Pakistan has gone on a small rise in the reserve. The issue has made the headlines where India has recorded a fall by $3.46 billion in forex reserves for the week ended October 25, 2024 while Pakistan posted a minor increment in the same period. Let us dig into factors behind this disparate trend in Indian and Pakistan's forex reserve.

India Forex Reserves Fall

Indian forex reserves declined to $684.8 billion at end-October 25 after reaching a peak of $704.88 billion during the third week of September. That is a decline since when India's foreign exchange reserves touched an all-time high, which is difficult for India to maintain this level of strong reserve in the forex position.

India's Forex includes all foreign currencies gold reserve and SDR, Special Drawing Rights provided to the international monetary fund besides the country's reserve with IMF. Recently, in India it had $593.75 billion of foreign currencies beside its 68.52 billion-dollar gold reserve 18.21 billion worth SDRs, with IMF reserves accounts amount to $4.3 billion.

Recently, in Pakistan increment in foreign exchange reserve remains minimal.

Meanwhile, the State Bank of Pakistan, the country's central bank, also reported an increase in its country's forex reserves during the week that ended on 25 October. Its report said it had a raise to $16.04 billion as compared to previous week at $16.01 billion. However minor this gain may seem on paper, Pakistan is finding reasons to rejoice about an increase when the economy that has relied on the finance from the International Monetary Fund all these months is seen regaining its stability.

Pakistan's economy remains reliant on foreign financing, be it in the form of IMF loans, to help maintain its forex reserves. As Pakistan continues to deal with persistent economic woes, any increase in its reserves becomes a reason to rejoice for the country, even though India's reserves are significantly more by comparison.

Why is there a change in Forex trends?

While one can attribute India's forex reserve slide to the spurt in global economic uncertainty or the strength of the US dollar and its spillover effects on the value of assets parked in other currencies, there is just a slight appreciation in Pakistan's forex as well. This is, for instance, because of inflows like IMF loans which temporarily buttress its forex position.

Although the decline of forex reserve in India would have the country worried, India's economic resilience along with a stable domestic demand would keep its long term intact. In contrast, a small forex gain in Pakistan only emphasizes the fact that this country is dependent on foreign aid and loans for sustaining its financial stability.

The two countries face challenging economic conditions. The focus of India lies in building up forex through a growth in exports along with stable economic policies, whereas for Pakistan, securing continuous funding from the IMF and other lenders is very critical in maintaining its forex levels.

In a matter of months, this will be the most pivotal period for both countries because they are going to enter into a new global economic shift, but with varying economic strategies and reserves, the forex dynamics between India and Pakistan are bound to continue sparking interest.

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