SBP bolsters foreign exchange reserves with $3.8 billion purchase

KARACHI: The State Bank of Pakistan (SBP) has made significant purchases of dollars from the banking market in the first four months of the current fiscal year, totalling $3.8 billion. This move aims to boost the country’s foreign exchange reserves and repay some foreign debt.

According to analysts, the unexpectedly high remittances have provided a surge in liquidity in the inter-bank market, encouraging the central bank to buy more dollars. The SBP’s net foreign exchange interventions from June to October 2024 have reached $3.8 billion, a significant increase compared to the country’s debt repayments during the same period.

The purchase has resulted in a $2.1 billion increase in the SBP’s foreign exchange reserves, with the remaining $1.7 billion allocated towards managing the country’s debt repayments. The governor of the State Bank has stated that most of the debt has already been serviced, and the rest will be rolled over.

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Bankers believe that the SBP could easily buy an additional $5 billion from the interbank market if remittances continue to rise, as they have increased by 33% to $17.8 billion in the first half of the fiscal year. Finance Minister Mohammad Aurangzeb has predicted that remittances will exceed $35 billion in FY25, which would allow the State Bank to buy more dollars and strengthen the exchange rate.

Despite the positive outlook, political uncertainty remains a hurdle for foreign investments. However, bankers say that the State Bank’s dollar buying has not impacted the exchange rate and will not cause a shortage of dollars. Imports have increased in December 2024, but the trade deficit is expected to remain within target to protect foreign exchange reserves and maintain a positive current account balance of $1.2 billion.

Governor, SBP, Jameel Ahmed stated that the current account could be plus or minus 0.5 percent by the end of FY25, indicating a stable economic outlook for Pakistan.