SBP reserves grow as remittance inflows remain strong

The State Bank of Pakistan (SBP) bought a staggering $3.8 billion from the interbank market in the first four months of fiscal year (FY) 2024-25. This was reportedly an attempt by the SBP to boost foreign exchange reserves and meet debt repayments.

According to independent bankers, the recent surge in remittance inflows boosted liquidity in the interbank market. This allowed the SBP to purchase a vast quantity of dollars without creating significant pressure on the exchange rate, which has remained stable for the past year.

Reports revealed that from June 2024 to October 2024, the SBP’s net foreign exchange interventions reached $3.8 billion. The SBP even received the first $1.03 billion tranche under the International Monetary Fund’s (IMF) $7 billion Extended Fund Facility at the end of September 2024, which represents a heightened level of activity by the SBP in intermarket operations.

The head of research and Investment Strategy, who works at a reputable bank, stated that the purchase of foreign currency by the SBP exceeded the country’s borrowings in the corresponding period. This shows a possible revitalisation of the SBP, which would be a good sign for the economy.

From June to October 2024, the SBP’s foreign exchange interventions allowed the banking watchdog to build up its reserves by a colossal $2.1 billion. The remaining interventions amounting to $1.7 billion were made to make debt repayments as per reports.

The SBP governor assured that most debt service payments had already been taken care of, while the remaining amount would be rolled over to the next period. While this spells great news for Islamabad, reports indicate that the cash-strapped nation still needs approximately $5 billion in the second half of FY 2024-25 to deal with the debt problem.

Reports have indicated that bankers remain optimistic as they are reportedly claiming that the SBP could easily acquire an additional $5 billion from the interbank market if remittance inflows continue to post respectable growth rates.

Data from reports has revealed that remittances ballooned to a staggering $17.8 billion in the first half of FY 2024-25, representing an improvement of 33 percent in remittance inflows.

Finance Minister Mohammad Aurangzeb said that remittance levels could exceed during the current fiscal year $35 billion. If his prediction stands true, the SBP could purchase even more foreign currency to build up its reserves.

If the SBP can achieve this and protect the exchange rate from volatility, Pakistan might soon witness rising foreign direct investment levels. However, while economic indicators do remain positive, the same cannot be said about the political scene, as uncertainty remains a major concern for foreign investors, often serving as a deterrent for them from parking their funds into the country.