Islamabad, Jan 7: In 2024, the SBP made a significant move to stabilize the country’s foreign exchange reserves, purchasing a record $9 billion from the local market.
This intervention, disclosed by Governor Jameel Ahmad during a Senate Standing Committee on Finance meeting, aimed at mitigating the pressure on reserves that had been strained by external factors.
Of the total amount, a substantial $4.5 billion was acquired in the second half of the year, which played a pivotal role in maintaining the reserves at a solid $11.7 billion. Despite facing challenges such as $5.7 billion in debt repayments during the first half of the fiscal year, the timely intervention ensured the country’s financial stability.
The SBP’s strategic action not only enabled the government to manage the foreign exchange effectively but also demonstrated its proactive approach in securing the nation’s economic health amidst a global financial crunch.
The Governor of the State Bank of Pakistan, Mr. Ahmad, emphasized the importance of market-based acquisitions in stabilizing Pakistan’s foreign exchange reserves. He stated that the SBP’s strategy has improved the quality of reserves by making them less dependent on external borrowing and reducing frequent interventions.
The reserves, which had dropped to a precarious $3 billion, were critically destabilising the economy and triggering higher inflation.
During discussions, the SBP governor confirmed that Pakistan had requested the United Arab Emirates (UAE) to roll over a $2 billion cash deposit due to debt maturing between January 17 and January 21.
Stabilize Forex Reserves
The UAE has already committed to the rollover, strengthening an earlier agreement aligned with the International Monetary Fund (IMF) under the $7 billion Extended Fund Facility. This move reflects SBP’s proactive efforts in balancing fiscal demands while fostering economic stability.
Mr. Ahmad of the central bank recently disclosed that Pakistan is actively engaging with bilateral and commercial creditors to secure financial stability.
The strategy includes an expected roll over of $16 billion in debt, including $2 billion from the UAE, aimed to mitigate external repayment pressures.
With $4.6 billion in repayments scheduled for the second half of FY25, the SBP’s approach focuses on maintaining a healthy balance between reserves and debt obligations to strengthen the economy against volatility.
During a meeting with the Senate Standing Committee, Chairman Saleem Mandviwalla expressed concerns over the $277 million paid to Visa and MasterCard for local transactions.
Highlighting those 287 million transactions last year resulted in substantial fees collected, Mandviwalla criticised the outflow of dollars and suggested legislative action to halt payments to foreign platforms.
The SBP acknowledged that a significant portion of the initiative’s budget is flowing through overseas remittance channels, raising concerns about the optimal use of funds. The committee emphasized the need for a transparent evaluation of the program to ensure its contribution to strengthening Pakistan’s forex reserves and reducing dependency on external financial flows.
In a session of the upper house, Senator Shibli Faraz, the Opposition Leader, raised doubts about the sustainability of the central bank’s aggressive dollar purchases.
He argued that this strategy of artificial stabilization could be hindering long-term economic reforms while failing to address systemic issues.
The SBP governor, however, countered, stating that such purchases were necessary during close daily trading sessions to stabilise the foreign exchange market and prevent reserves from falling to unsustainable levels.
Ensuring dollar supply exceeds market demand helps to maintain stability and shield the economy from external shocks.
With Pakistan’s total external debt at $133 billion and external public debt reaching $101 billion as of December 2024, these actions are critical to avert further economic instability.
