The State Bank of Pakistan (SBP) bought $3.8 billion from the interbank market between June and October 2024. This move was aimed at increasing foreign exchange reserves by $2.1 billion and helping meet Pakistan’s debt obligations. The purchase was part of the central bank’s efforts to stabilize the economy and secure its currency.
SBP Purchase of $3.8 Billion
The SBP intervention in the market was crucial for boosting foreign reserves and maintaining economic stability. Out of the total amount, $1.7 billion was specifically allocated for servicing the country’s external debt. This was necessary to avoid any potential default on international payments.
| Total Purchase | Purpose | Amount for Debt Servicing |
|---|---|---|
| $3.8 billion | Increase forex reserves | $1.7 billion |
Remittance Inflows Surge
In addition to the SBP’s purchases, remittance inflows helped stabilize the country’s foreign exchange reserves. Remittances surged by 33% to $17.8 billion in the first half of FY25. These higher-than-expected remittances played a key role in supporting the central bank’s purchases of dollars without putting too much strain on the exchange rate.
| Period | Remittance Inflow | Percentage Increase |
|---|---|---|
| First Half of FY25 | $17.8 billion | 33% |
Stable Exchange Rate Despite Dollar Purchases
Despite the large purchase of dollars by the SBP, the exchange rate remained stable. This stability can be attributed to the strong remittance inflows and the cautious monetary policy adopted by the central bank. Finance Minister Muhammad Aurangzeb projects that remittances will exceed $35 billion in FY25, further supporting the economy.
| Purchase by SBP | Impact on Exchange Rate | Future Projections |
|---|---|---|
| $3.8 billion | Exchange rate remained stable | Remittances to exceed $35 billion |
Widening Trade Deficit
The trade deficit increased in December 2024, primarily due to rising imports. Despite the growing deficit, bankers estimate that the trade deficit will remain within a manageable range for the fiscal year. The current account remains positive, with a balance of $1.2 billion, reflecting a healthy economic position.
| Month | Trade Deficit | Current Account | Estimation for FY25 |
|---|---|---|---|
| December 2024 | Widened due to imports | $1.2 billion surplus | Deficit/surplus within 0.5% of GDP |
SBP Future Plans
The SBP is expected to buy another $5 billion if remittance inflows continue to increase as projected. This additional purchase will help the central bank further bolster Pakistan’s foreign exchange reserves and maintain the country’s financial stability.
| Future Purchase | Purpose | Condition |
|---|---|---|
| $5 billion | Boost forex reserves | Continued increase in remittances |
Summary
The State Bank of Pakistan’s purchase of $3.8 billion from the interbank market is a key strategy to strengthen Pakistan’s foreign exchange reserves and ensure that debt obligations are met. Supported by strong remittance inflows, the SBP is managing to keep the exchange rate stable despite challenges. Going forward, the central bank may need to buy more dollars to further stabilize the economy.
