A shortage of crucial dollars has left banks refusing to issue new LC’s

Thousands of containers packed with essential food items, raw materials and medical equipment have been held up at Pakistan’s Karachi port as the country grapples with a desperate foreign exchange crisis. A shortage of crucial dollars has left banks refusing to issue new letters of credit for importers, hitting an economy already squeezed by soaring inflation and lackluster growth.

State bank forex reserves this week dwindled to less than $6 billion — the lowest in nearly nine years — with obligations of more than $8 billion due in the first quarter alone. The reserves are enough to pay for around a month of imports, according to analysts. Pakistan’s economy has crumbled alongside a simmering political crisis, with the rupee plummeting and inflation at decades-high levels, while devastating floods and a major shortage of energy have piled on further pressure. The South Asian nation’s enormous national debt — currently $274 billion, or nearly 90% of gross domestic product — and the endless effort to service it makes Pakistan particularly vulnerable to economic shocks.

Islamabad has been pinning its hopes on an IMF deal brokered under the last Pakistani leader Imran Khan, but the latest payment has been pending since September. The global lender is demanding the withdrawal of remaining subsidies on petroleum products and electricity aimed at helping the population of 220 million with the cost of living. Prime Minister Shehbaz Sharif this week urged the IMF to give Pakistan some breathing space as it tackles the “nightmarish” situation.

The forex crisis has deepened the woes of textile manufacturers, which are responsible for around 60% of Pakistan’s exports. They have suffered as a result of the country’s energy shortages, damage to cotton crops during the floods, and a recent hike in taxes.