The State Bank of Pakistan's (SBP) foreign exchange reserves took a staggering hit, falling by approximately $2.7 billion in a single week. As per reports, this caused SBP reserves to decline to a three-year low of $9.064 billion.

 

Analysts have outlined how current SBP reserves fall far short of the revised target of $14 billion for fiscal year (FY) 2024-25. According to data released by the SBP on Thursday, the sharp drop occurred in the week ending June 20 and was primarily attributed to large external debt repayments.

 

As per financial analysts, Islamabad may have remained unable to extend or roll over commercial loans. Reports reveal that a large chunk of the repayment amount was put toward repaying commercial borrowing debt. 

 

Analysts cite higher penalties for rolling over existing commercial debt as a likely possibility for the steep drop in reserves. As per reports, an extension on the repayment could have come with stricter conditions. 

 

The SBP had recently adjusted its reserves target for FY 2024-25 from $13 billion to $14 billion. Earlier reports indicated that China intended to grant a rollover to Pakistan worth approximately $1.8 billion. 

 

Prior to the sharp fall in SBP reserves, Finance Minister Muhammad Aurangzeb claimed that reserves would cross $14 billion by the close of FY 2024-25. Moreover, the IMF had been assured by Pakistani authorities that reserves will stand at $13.9 billion at the start of FY 2025-26.

 

Currency market experts were stunned by the sudden transaction as well, stating that the market did not expect the payment to be made at the end of the outgoing FY. 

 

While the SBP faced a setback from the unexpected outflow of reserves, reports suggest that it has received inflows of $3.6 billion in commercial and multilateral loans during the current week, which will be included in the reserves data for the week ending June 27.

 

This will bring up total reserves to $12.664 billion. Data from reports reveals that this will result in Pakistan falling $1.3 billion short of the target.

 

Reports indicate that the SBP remained active, purchasing dollars from the open market during the current fiscal year. Some analysts peg the amount bought by the SBP to sit between $6 to $8 billion. The SBP made the aforementioned interventions to meet the reserve requirements set by the International Monetary Fund (IMF).