The State Bank of Pakistan (SBP) made a record purchase of over $9 billion from the local market in 2024 to stabilize its foreign exchange reserves, as revealed by Governor Jameel Ahmad during a Senate Standing Committee on Finance meeting. This intervention, aimed at countering economic pressures, reflects the central bank’s strategic efforts to maintain financial stability amid significant debt repayments and external challenges.
Of the total $9 billion, $4.5 billion was acquired in the second half of the year, helping keep reserves at $11.7 billion. This was despite $5.7 billion in debt repayments during the first half of the fiscal year. Governor Ahmad emphasized that market-based acquisitions have enhanced the “quality” of reserves, reducing reliance on external borrowing. Without these interventions, reserves could have plummeted below $3 billion, a situation that could have destabilized the economy and exacerbated inflationary pressures.
The central bank also confirmed that Pakistan has requested the United Arab Emirates (UAE) to roll over $2 billion in cash deposit debt maturing in January 2025. The UAE has pledged support for this rollover as part of its agreement with the International Monetary Fund (IMF) under the $7 billion Extended Fund Facility. Additionally, bilateral and commercial creditors are expected to roll over $16 billion in debt, including the $2 billion from the UAE, to ease repayment pressures. Pakistan faces $4.6 billion in external repayments during the second half of the fiscal year.
During the meeting, Senator Saleem Mandviwalla raised concerns about the $277 million paid to Visa and MasterCard for local transactions. These charges, collected from 287 million domestic transactions in 2024, were borne by cardholders through annual fees. Mandviwalla criticized this dollar outflow and urged the SBP to take action by introducing separate debit and credit cards for local and international transactions to reduce reliance on foreign payment platforms. Of the 44 million debit and credit cards issued in Pakistan, only 11 million are locally owned, according to the SBP executive director.
The Senate committee also discussed the Pakistan Remittance Initiative (PRI), revealing that 80% of the Rs86 billion allocated for promoting remittances was being used for incentives abroad. The SBP acknowledged that a significant portion of this budget supports overseas remittance channels, raising questions about its effectiveness in boosting local economic activity.
Opposition Leader Senator Shibli Faraz expressed skepticism about the sustainability of the SBP’s dollar purchases, arguing that artificially stabilizing reserves might hinder long-term economic reforms. However, Governor Ahmad defended the strategy, stating that these purchases, conducted at the end of daily trading sessions, were crucial to stabilizing the foreign exchange market. He emphasized that the current dollar supply exceeds market demand, allowing the central bank to maintain stability without depleting reserves.
Despite these efforts, Pakistan’s external debt reached $133 billion by December 2024, with external public debt accounting for $101 billion. The SBP’s interventions underscore the delicate balance between managing reserves and addressing the country’s growing debt obligations. While these measures have provided short-term relief, they also highlight the pressing need for sustainable economic reforms to address structural challenges.