Pakistan’s Foreign Exchange Reserves Witness a Notable Increase

Over the past two to three years, economic conditions have witnessed a
gradual decline competing with multiple challenges that pushed the country into
its most severe economic conditions to date, but recent months have shown
improvement and positive indicators, offering hope for a brighter future.
Pakistan’s export sector has exhibited robust growth, with a remarkable
increase of nine percent, reaching $20.351 billion in the first eight months of the
current fiscal year. This figure represents a substantial rise from the corresponding
months of the previous year, which stood at $18.670 billion. The surge in exports has
played a crucial role in bolstering the country’s trade balance by generating more foreign
exchange earnings and reducing reliance on imports. In contrast, there was a notable
decline of 11.87 percent in imports during the same period. The total value of imports
stood at $35.223 billion, representing a significant decrease from the corresponding
months of the previous fiscal year when it amounted to $39.969 billion. Furthermore,
Pakistan’s trade deficit underwent a substantial reduction of 30.18 percent during the JulyFebruary period of the fiscal year 2023-24. The upward trend in exports and the
concurrent decrease in imports and trade deficit indicates a positive trend towards
achieving a more sustainable trade position and reducing reliance on external borrowing.
Moreover, in another encouraging development, Pakistan’s total liquid
foreign reserves saw a notable increase, surging to a five-week peak. During the
reviewed week, the State Bank of Pakistan (SBP) experienced a rise in reserves by $105
million, elevating the total reserves to $8.018 billion from $7.913 billion. Furthermore,
commercial banks reported a surge in net foreign reserves by $134 million within the
same period, reaching a total of $5.373 billion. This boost in reserves reflects a
positive trend in Pakistan’s economic stability and financial outlook, indicating a
strengthening position in terms of foreign exchange reserves.The existing level of
foreign reserves presents a positive outlook, as it is considered adequate to cover the
import bill for approximately 1.54 months. Sufficient foreign reserves play a crucial role in
ensuring stability in Pakistan’s balance of payments, safeguarding the currency, and
mitigating external vulnerabilities.
The recent surge in foreign currency reserves to a five-week high has been
instrumental in maintaining the rupee at a five-month peak. The escalating Real Effective
Exchange Rate (REER) indicates that the local currency is currently at a solid and
competitive level. However, if the rupee continues to appreciate further, it could potentially
lead to cheaper imports but also pose challenges for the export sector by making exports
relatively more expensive in the global market.
The improvement in reserves can be attributed to several factors. Firstly, there
has been an increase in bank purchases of US dollars in the interbank market, as the
supply of foreign currency has surpassed its demand. Additionally, exporters have been
actively selling the greenback on futures counters, contributing to the accumulation of
reserves. Furthermore, overseas Pakistanis have sent higher remittances to support their
families and friends in meeting rising expenses during the holy month of Ramadan and
the festive occasion of Eid.
These combined factors have played a significant role in bolstering the country’s reserves,
highlighting a promising path for Pakistan’s currency. The recent improvement in
Pakistan’s foreign reserves demonstrates positive signs for the economy. The stability of
the exchange rate and the accumulation of foreign reserves are encouraging indicators,
reflecting the effectiveness of monetary policies implemented by the State Bank of
Pakistan. These developments point towards improved macroeconomic conditions and
suggest a strengthened economic outlook. By maintaining exchange rate stability and
continuing efforts to bolster foreign reserves, Pakistan can foster sustainable economic
growth, attract foreign investment, and enhance overall economic resilience. These
positive trends bode well for the future prospects of Pakistan’s economy.