SBP purchases $5.9 billion to build reserves

The State Bank of Pakistan (SBP) has accumulated $5.9 billion from the currency market since the start of fiscal year (FY) 2024-25 by utilising stronger remittance inflows. According to reports, the SBP aims to build up its foreign exchange reserves even as it continues to receive financial support from the International Monetary Fund (IMF) and allied nations.

According to data compiled by a reputable domestic brokerage house, the SBP purchased a staggering $223 million in February alone. The total volume of market purchases during the first nine months of FY 2024-25 reportedly suggests that the SBP wants to accrue a respectable amount of reserves, which has caused analysts to outline how the SBP’s purchase of dollars in the aforementioned period might be the largest in recent history.

Despite these efforts, the SBP has fallen short of its reserves target. After initially forecasting modest inflows, the SBP revised its expectations upwards, setting a new goal of $14 billion in reserves while simultaneously projecting remittances to reach $38 billion by the end of FY25.

Following a $1 billion IMF disbursement received on May 16, SBP’s reserves rose to a respectable $11.5 billion. Reports claim that this figure indicates that nearly half of the reserve accumulation has come from dollar buying in the open market.

Currency dealers report that despite ample liquidity, the SBP has continued to restrict import activity. Pakistan’s trade deficit in April hit a new high, while FY 2024-25 also witnessed record-high profit repatriation by foreign companies.

For reference, repatriation of profits by foreign companies indicates a movement of funds out of the domestic market. Persistently high trade deficits and repatriation of profits abroad have reportedly pressured Pakistan’s external account.

At the same time, Pakistan is set to receive further external support. Reports reveal that a $1.4 billion inflow is expected under the IMF’s Resilience and Sustainability Facility. Moreover, the domestic financial sector claims that Pakistan has been successful in inking a $1 billion agreement with the United Arab Emirates (UAE), which will result in an inflow of funds likely in the coming weeks.

On the investment front, foreign direct investment during the first ten months of the fiscal year slightly lagged behind the previous year’s tally. However, analysts believe that a firm and strategic response to recent Indian aggression has helped Pakistan reassert its regional presence. Some see this as a potential catalyst for improved investor sentiment and renewed interest in long-term commitments to the country.