Level of External Vulnerability Chapter 9: Level of External Vulnerability The previous articles have highlighted that Pakistan is on the verge of a major financial crisis, which is likely to lead to a growing difficulty in honoring external debt repayments and result in a‘default’ situation. Foreign exchange reserves stand at barely$5.5 billion as of the end of December 2022. Required financing for the remainder of 2022-23 is over$17 billion, with$7 billion for the current account deficit and$10 billion for debt repayments. As highlighted earlier, given the low credit ratings of Pakistan, access to external financing is becoming increasingly limited. In the first five months of 2022-23, only$5 billion of loans were made available, mostly by multilateral agencies. Private creditors are refraining from lending to Pakistan. The objective of this chapter is show in the first Section the rising level of external vulnerability of Pakistan. Analysis is undertaken of the factors contributing to this weakening. The second Section compares the magnitudes of a set of external vulnerability indicators of a number of countries and Pakistan’s ranking in terms of the level of external vulnerability among this group of countries. The last Section then highlights the magnitude of key variables like the GDP growth rate, rate of inflation, etc., in these vulnerable countries. 9.1 Trend in External Vulnerability External vulnerability is measured based on the following two indicators: • Size of import cover, measured in months, as the ratio of foreign exchange reserves to the level of annual imports of goods and services. • Extent of which the foreign exchange reserves at the start of the year were adequate to meet the projected external financing requirements during the year, consisting of the current account deficit plus the total external debt repayment. The magnitudes of the two indicators are presented in Table 9.1. The import cover ratio has followed a U-shaped curve from 2016-17 to 2020-21. It was significantly above 3 months, the minimum‘safe’ level, in 2016-17 and 2020-21. Thereafter, the ratio declined to a low of 1.4 in 2018-19 from 1.7 in 2017-18. From 2019­20 onwards Pakistan has been in a‘stop-and-go’ IMF program. Fortunately, international 95