New bank-funded initiative aims to encourage overseas Pakistanis and remittance centres to use formal channels as SBP targets more than $44 billion in inflows.
KARACHI: The State Bank of Pakistan (SBP) is likely to launch a new remittance incentive scheme from early next month to encourage overseas Pakistanis and remittance centres to use formal banking channels, the central bank said during an analyst briefing.
According to the SBP, the proposed scheme will be designed and funded entirely by banks. It will provide incentives to remittance centres and beneficiaries, with the aim of increasing the flow of remittances through formal channels.
The announcement came as the SBP kept its policy rate unchanged at 11.5 per cent. Seven members of the Monetary Policy Committee (MPC) voted to maintain the rate, while three members favoured a change.
SBP expects remittances to exceed $44bn
The central bank expressed confidence that Pakistan’s remittances would exceed $44 billion during FY2026-27, supported by expected seasonal increases around Ramadan and Eid-ul-Adha.
The new incentive scheme is expected to complement existing measures aimed at channelling remittances through formal banking and exchange channels, helping strengthen the country’s external account position.
The SBP also highlighted a significant improvement in Pakistan’s external buffers, with foreign exchange reserves rising to $21.4 billion following receipt of proceeds from the country’s latest international capital market transaction.
The reserve position has already surpassed the original FY2026-27 target of $21 billion. The SBP indicated that the target would be revised upwards at the next MPC meeting.
Pakistan raises $3bn through international markets
Pakistan recently raised $3 billion through international capital markets following sovereign rating upgrades.
The transaction comprised a $1.25 billion 10-year bond and a $1.75 billion 5.5-year instrument.
The SBP said the transaction would help extend the maturity profile of Pakistan’s external debt, although the overall external debt stock is expected to remain broadly unchanged because of substantial repayments.
The central bank confirmed that the full $3 billion in Eurobond proceeds had already been received and would be reflected in upcoming reserve data.
Pakistan faces around $21.5 billion in external debt servicing obligations during FY2026-27. After accounting for rollovers, the net repayable amount, including principal and interest, is estimated at around $11 billion.
Of this amount, approximately $3.5 billion had already been repaid during the first two and a half months of FY27, leaving around $7.5 billion to be settled during the remainder of the fiscal year.
Commercial loan refinancing is expected to amount to around $3.2 billion.
SBP sees GDP growth of up to 4.5%
The SBP expects Pakistan’s GDP growth to remain between 3.5 per cent and 4.5 per cent in FY2026-27.
The central bank said economic activity had slowed towards the end of FY2025-26 amid geopolitical tensions but had started to recover during July and August, as indicated by high-frequency economic indicators.
However, it identified the ongoing geopolitical situation as a key risk to the growth outlook.
The SBP expects inflation to gradually decline towards the upper end of its target range during FY27 before moving comfortably within the 5-7 per cent target band from FY2027-28.
Pakistan’s external position strengthens
Pakistan’s current account deficit stood at only 0.1 per cent of GDP in FY2025-26, near the lower end of the SBP’s target range.
The central bank expects the FY27 current account deficit to remain within 0-1 per cent of GDP, despite pressure from international oil prices.
The SBP also highlighted a substantial improvement in its forward foreign exchange position. Its forward book has declined from $5.7 billion in February 2023 to less than $0.7 billion currently.
During the same period, foreign exchange reserves increased from less than $3 billion to more than $21 billion.
The central bank said the combined improvement in external buffers amounted to around $23 billion.
Regarding the Real Effective Exchange Rate (REER), currently at 107, the SBP said the rupee remained fairly valued based on multiple assessment methodologies and reiterated that the exchange rate was market-determined.
Fiscal position improves
The SBP noted that FY2025-26 fiscal outturns, including the primary and overall fiscal balances, were better than targeted.
The improvement contributed to a reduction in the debt-to-GDP ratio to around 68.3 per cent.
The central bank also said Pakistan’s improved credit ratings had been reflected in lower credit default swap (CDS) spreads and improved secondary-market bond yields.
Looking ahead, the SBP said monetary policy would remain focused on maintaining price stability.
It emphasised that continued fiscal consolidation, structural reforms and further strengthening of external buffers would be essential to improve Pakistan’s resilience against future economic and external shocks.