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Pakistan’s Forex Reserves Reach $11 Billion After 30-Month Gap
Pakistan’s foreign exchange reserves, held by the State Bank of Pakistan (SBP), rose to over $11 billion as of October 11, 2024. This marks an increase of $215 million in a week and a significant milestone after 30 months. The reserves have grown for 12 consecutive weeks, reflecting an overall increase of $2 billion in three months. The International Monetary Fund’s (IMF) $7 billion loan program, initiated in September, contributed to this rise. The inflow of IMF funds, along with strong remittance inflows, supported the growth.
Rupee Stability and Improved Import Cover
The Pakistani rupee appreciated by Rs0.05 against the US dollar in the inter-bank market, ending a brief losing streak. The SBP’s active dollar purchases to repay foreign debt and boost reserves played a role in this stabilization. With the latest surge, Pakistan’s import capacity has expanded to over two months, a significant improvement from less than one month in June 2023. The SBP Governor predicts that foreign exchange reserves will rise to $13 billion by June 2025, supported by healthy remittance inflows and export growth.
RDA Inflows and Market Impact
Roshan Digital Account (RDA) inflows also contributed positively, increasing by $168 million in September, bringing total deposits to $8.75 billion since the scheme’s inception. Net inflows amounted to $1.53 billion, stabilizing reserves. Overseas Pakistanis primarily invested in Naya Pakistan Certificates (NPCs), Shariah-compliant NPCs, and the stock market.
Economic Outlook for FY2024-25
Despite positive trends, Pakistan’s economy faces challenges. The SBP’s annual report indicated that while industrial and services sectors are expected to grow in FY2024-25, the agriculture sector may not maintain its momentum due to a decline in cotton arrivals. The central bank forecasts real GDP growth between 2.5% and 3.5%, up from 2.5% last year. The services and industrial sectors show recovery, while remittances are projected to reach $32-33 billion in FY2025. However, volatility in global energy prices poses a risk to economic stability.
Inflation and Policy Adjustments
Headline inflation has been on a downward trend, falling to 6.9% in September 2024. The SBP lowered the policy rate by 4.5 percentage points to 17.5%, reducing borrowing costs and supporting industrial expansion. Despite the challenges posed by global oil prices and fiscal slippages, inflation is expected to remain in check.
The SBP continues its efforts to stabilize the economy through fiscal consolidation, maintaining positive real interest rates, and boosting foreign exchange reserves. While structural challenges like low investment, climate change risks, and energy sector inefficiencies remain, the outlook for FY2024-25 is cautiously optimistic.
