KARACHI: The State Bank of Pakistan (SBP) purchased about $3.8 billion from banks in the first four months of the current fiscal year to improve its foreign exchange reserves and repay some foreign debt.

Bankers said the unexpectedly higher remittances provided enough liquidity in the inter-bank market, encouraging the central bank to buy dollars.

“Between June and October 2024, the SBP’s net foreign exchange interventions reached $3.8bn,” said Tahir Abbas, Head of Research and Investment Strategy at Arif Habib Ltd.

Historically, the State Bank buys dollars from the banking market to keep substantial reserves and stabilise the exchange rate. However, money market experts said that the SBP dollar buying was too big compared to the country’s borrowings during the period.

At the end of September 2024, Pakistan received the first tranche of $1.03bn under the 37-month $7bn Extended Fund Facility from the International Monetary Fund (IMF), while the SBP bought $3.8bn from the domestic currency market in June-October 2024.

“This strategic action led to a $2.1bn increase in the SBP’s foreign exchange reserves, while the remaining $1.7bn allocated towards managing the country’s debt repayments,” said Mr Abbas.

The SBP governor recently said that most of the debt had already been serviced and the rest would be rolled over. He said around $5bn would be needed in the second half of FY25.

Bankers believe that the SBP could easily buy $5bn more from the interbank market if the remittances inflows continue to rise. During the fiscal year’s first half, the remittances increased by 33pc to $17.8bn.

Finance Minister Mohammad Aurangzeb recently said that he expected remittances to exceed $35bn in FY25. This massive increase would allow the State Bank to buy more dollars from the banking market and strengthen the exchange rate, which has been stable for over a year and is a big attraction for foreign investments. However, the political uncertainty is still a hurdle.

Bankers said the State Bank’s dollar buying did not impact the exchange rate and would not cause any shortage.

Imports increased in December 2024, but the banker said the trade deficit would remain within the target to protect the foreign exchange reserves and current account. The current account is positive at $1.2bn, while the governor of State Banks said the current account could be plus or minus at 0.5pc by the end of FY25.

Published in Dawn, February 6th, 2025