Karachi, October 17, 2024 – In a positive turn for Pakistan’s economic stability, the country’s net foreign exchange (forex) reserves saw a modest uptick of $64 million by the week ending October 10, 2024, as reported by the State Bank of Pakistan (SBP) on Thursday.
The country’s total forex reserves now stand at $16.111 billion, marking a slight increase from $16.047 billion recorded a week prior, on October 4, 2024.
The noteworthy expansion in reserves comes largely from the SBP’s holdings, which experienced a robust surge. The official reserves held by the SBP swelled by $215 million during the same period, rising from $10.808 billion to $11.023 billion. This significant rise can be primarily attributed to inflows from the International Monetary Fund (IMF). Pakistan recently received a tranche of $1 billion under the IMF’s Extended Fund Facility (EFF), which has bolstered the central bank’s reserves and provided a much-needed cushion against external shocks.
The IMF’s Extended Fund Facility has been pivotal in stabilizing Pakistan’s financial sector, especially as the country navigates challenges including high inflation, fiscal imbalances, and fluctuating global commodity prices. This injection of foreign capital strengthens Pakistan’s ability to meet its external obligations and stabilize its currency, reducing pressure on the rupee.
However, while the SBP’s reserves received a boost, the commercial banking sector witnessed a significant decline in its forex holdings. The reserves held by commercial banks plummeted by $151 million, falling from $5.239 billion to $5.088 billion in the week ending October 10, 2024. This stark contrast highlights a potential liquidity strain in the private banking sector, which could reflect broader economic pressures on the domestic market.
The divergence between rising central bank reserves and falling commercial bank holdings suggests a complex interplay of forces, potentially driven by market demand for foreign currency, external debt repayments, or reduced foreign inflows into the private sector. This dynamic will be closely watched by market analysts, as it may signal emerging challenges in managing liquidity and foreign exchange within the commercial banking system.
Overall, the rise in Pakistan’s net forex reserves, fueled by the SBP’s inflows, is a positive development, yet the decline in commercial bank reserves suggests underlying vulnerabilities that may require further attention. The country’s financial authorities will need to maintain vigilance in balancing fiscal discipline with the demands of the domestic economy in the months ahead.