The State Bank of Pakistan (SBP) has purchased approximately $3.8 billion from commercial banks during the first four months of the current fiscal year, aiming to strengthen its foreign exchange reserves and meet foreign debt obligations.
The higher-than-expected remittance inflows provided sufficient liquidity in the interbank market, enabling the central bank to make significant dollar purchases.
Historically, the SBP has intervened in the currency market to maintain adequate reserves and stabilize the exchange rate. However, market analysts noted that the scale of dollar buying during this period was unusually large compared to the country’s external borrowings.
In late September 2024, Pakistan received $1.03 billion as the first tranche of a $7 billion Extended Fund Facility (EFF) from the International Monetary Fund (IMF). During the same period, the SBP purchased $3.8 billion from the domestic market, which contributed to a $2.1 billion increase in reserves
The SBP governor recently stated that most of the country’s debt obligations had already been settled, with the remaining amount expected to be rolled over. He estimated that an additional $5 billion would be required in the second half of FY25.
Bankers are optimistic that the SBP could acquire another $5 billion from the interbank market if remittance inflows continue to grow. During the first half of the fiscal year, remittances surged by 33% to $17.8 billion. Finance Minister Mohammad Aurangzeb projected that remittances could exceed $35 billion by the end of FY25, which would provide the central bank with further opportunities to bolster reserves and maintain exchange rate stability.
The exchange rate has remained stable for over a year, which has been a key factor in attracting foreign investment. However, political uncertainty continues to pose challenges to economic stability.
Despite an increase in imports in December 2024, bankers believe the trade deficit will remain within manageable levels to safeguard foreign exchange reserves and the current account. The current account surplus stood at $1.2 billion, and the SBP governor predicted it would remain within a range of plus or minus 0.5% by the end of FY25.
Bankers also noted that the SBP’s dollar purchases have not disrupted the exchange rate or caused any dollar shortages in the market, further supporting the central bank’s strategy to manage reserves and debt effectively.
