Pakistan’s external account pressures re-emerged as the State Bank of Pakistan (SBP) reported a $367 million decline in its foreign exchange reserves, taking the central bank’s total holdings down to $10.205 billion during the week ended April 18. The SBP attributed the drop to scheduled external debt repayments, a recurring challenge for the economy as the country continues to manage its financing obligations under tight fiscal conditions.
With this latest decline, Pakistan’s total foreign exchange reserves now stand at $15.436 billion, a figure that includes $5.230 billion held by commercial banks. The movement in reserves reflects a familiar pattern observed in recent months, where inflows from multilateral partners or friendly nations are offset by hefty outflows for debt servicing and imports.
The reduction in the SBP’s reserves comes at a time when the country is in talks for a potential new loan package with the International Monetary Fund (IMF) following the completion of a short-term Stand-By Arrangement (SBA). Pakistan’s economic managers have repeatedly emphasized the importance of maintaining a minimum reserve buffer to sustain import cover and manage currency stability. However, continued debt repayments and uncertainty around inflows keep reserves under stress.
The decline in forex reserves coincided with significant volatility in Pakistan’s dollar-denominated sovereign bonds. According to a Reuters report, the bonds saw a sharp sell-off on Thursday, driven by escalating tensions with neighboring India. Market participants showed increased risk aversion, prompting Pakistan’s 2036 bond to shed more than 4 cents, trading around 74 cents on the dollar — one of the steepest declines across emerging market sovereigns that day.
The bond market reaction signals growing investor concerns over regional geopolitics as well as Pakistan’s broader macroeconomic outlook. While the country has managed to stabilize its economy in recent months, thanks to tighter monetary policy, currency management, and fiscal reforms, investor sentiment remains fragile and sensitive to geopolitical developments.
The pressure on reserves may also impact Pakistan’s near-term exchange rate stability. Despite the rupee’s relative calm in recent weeks, market analysts warn that continued outflows without offsetting inflows could exert renewed pressure on the currency. The central bank has, so far, maintained a stable foreign exchange policy with limited intervention, relying on improved remittances and exports to keep the external position in balance.
This situation underscores the urgency for Pakistan to unlock external financing commitments and build buffers ahead of the upcoming debt maturities and energy-related payments in the next quarter. Policymakers are expected to fast-track discussions with the IMF and other development partners to ensure liquidity needs are met without further stress on reserves.
The current level of SBP reserves covers just over two months of imports, which remains below the ideal threshold for developing economies. With geopolitical risks flaring and external financing uncertain, Pakistan’s financial leadership faces a delicate balancing act to steer the economy toward stability while managing investor confidence and fulfilling debt obligations.
As the global financial environment remains uncertain, further updates on the IMF program and any incoming external support will be closely watched by both domestic markets and international creditors.