The State Bank of Pakistan (SBP) reported an increase of $106 million in its foreign exchange reserves, bringing the total to $10.81 billion as of October 4, 2024. This data, released on Thursday, highlights a modest rise in the country’s reserves, contributing to a stronger financial position for the central bank.
The total liquid foreign reserves held by Pakistan, including those with commercial banks, now stand at $16.05 billion. Of this, net foreign reserves held by commercial banks amount to $5.24 billion, reflecting the distribution of reserves across the country’s financial system. Despite the increase, the central bank did not provide specific reasons for the uptick in reserves during the weekly update.
“During the week ended on 04-Oct-2024, SBP reserves increased by US$ 106 million to US$ 10,808.0 million,” the central bank’s statement read. The announcement follows a larger reserve boost the previous week, when SBP’s reserves saw a significant increase of $1.168 billion. This prior rise was attributed to the receipt of a first tranche of Special Drawing Rights (SDR) worth 760 million, equivalent to $1.03 billion, from the International Monetary Fund (IMF).
The recent IMF inflow is part of a broader support program initiated to stabilize Pakistan’s economy. The Executive Board of the IMF approved a 37-month, $7 billion Extended Fund Facility (EFF) for Pakistan in the preceding month, marking a substantial international financial intervention aimed at bolstering the country’s economic stability. This agreement was the culmination of negotiations that reached a staff-level agreement on July 12, 2024, allowing Pakistan access to SDR 5,320 million, or roughly $7 billion, under the EFF.
The increase in foreign exchange reserves provides Pakistan with a strengthened buffer to manage external financial challenges, including meeting international debt obligations and stabilizing the exchange rate. A higher reserve level also offers greater resilience against external shocks, such as fluctuations in global commodity prices or capital outflows that can impact the balance of payments.
In recent years, the SBP has faced the challenge of maintaining sufficient reserves amid economic headwinds, including high inflation, currency depreciation, and trade imbalances. The IMF program is expected to play a pivotal role in stabilizing Pakistan’s economic outlook, with a focus on implementing structural reforms, improving fiscal discipline, and fostering sustainable growth. The inflows from the IMF and other international partners have been seen as critical to alleviating immediate external financing needs, supporting economic reforms, and rebuilding market confidence.
As the central bank navigates these challenges, maintaining and gradually increasing foreign exchange reserves remains a priority. The accumulation of reserves, even in smaller increments like the recent $106 million rise, is a positive sign for the country’s external financial position. It helps to stabilize market sentiment and supports the SBP’s ability to manage the rupee’s value against other currencies, a critical aspect of economic stability for Pakistan.
The coming weeks and months will be crucial as the country works to further strengthen its economic standing, leveraging international support and implementing the conditions agreed upon with the IMF. The focus will remain on achieving stability in the foreign exchange market, ensuring liquidity, and managing inflationary pressures through coordinated fiscal and monetary policies.
With the IMF’s financial backing and strategic economic measures, the government and the SBP aim to create a more resilient economic environment, positioning Pakistan for recovery and sustainable growth. The increase in reserves, albeit modest, signals progress towards these broader financial goals and reinforces the importance of maintaining a solid external financial position in a volatile global economic environment.