Import Cover
Import cover is the number of months a country could keep paying for its imports out of its foreign exchange reserves if no new foreign currency came in. It is the simplest measure of how long a country can withstand an external shock.
Also called: months of import cover · months of imports · import coverage ratio
The calculation is usable reserves divided by average monthly imports of goods and services. A country that imports US$10 billion a month and holds US$60 billion in usable foreign exchange reserves has six months of import cover. The traditional rule of thumb treats three months as the minimum comfortable level.
The number matters to payments people because it predicts friction before it arrives. When import cover falls, central banks start rationing foreign currency: banks delay outward transfers, importers are asked to queue, documentation rules tighten and the parallel-market rate pulls away from the official one. A legitimate importer with plenty of local money can still be unable to pay a foreign invoice.
Import cover is one input to reserve adequacy, not the whole of it. Crises also come from short-term external debt falling due, portfolio outflows and capital flight, none of which the import ratio sees.
In practice
Headline reserves overstate the cushion when part of them is borrowed, pledged or otherwise not freely usable. Six months of cover on paper can be far less in practice.
Example
A central bank reports US$9 billion in reserves against monthly imports of US$4.5 billion: two months of import cover. Banks in that market begin prioritising fuel and medicine, and an equipment importer is told its euro payment will wait for an allocation.
Commonly confused with
| Term | How it differs |
|---|---|
| Reserve adequacy | Import cover is one ratio. Reserve adequacy is the broader judgement, which also weighs short-term debt, capital outflows and the exchange-rate regime. |
See also
- Foreign Exchange ReservesForeign exchange reserves are the foreign-currency assets a central bank holds and can use at short notice: deposits and government securities in major currencies, gold, Special Drawing Rights and the country's reserve position at the IMF.
- Reserve AdequacyReserve adequacy is the judgement of whether a country's foreign exchange reserves are large enough for the shocks it could plausibly face. It is assessed with several ratios together, because no single number captures every way reserves can drain.
- Capital ControlsCapital controls are government limits on moving money into or out of a country, or on converting its currency at the official rate. Imposed by a central bank or finance ministry, they determine whether a payment corridor is workable at all, and in which direction.
- Parallel Market RateA parallel market rate is the rate at which a currency actually trades outside official channels, in a country where the official rate is not obtainable. In a tightly controlled market it is often the only rate at which real business clears.
- Hard CurrencyA hard currency is one that is widely accepted for international payment, freely convertible and expected to hold its value, such as the US dollar, euro, yen, pound sterling or Swiss franc. Suppliers abroad generally insist on being paid in one.