SBP's foreign exchange reserves up $43 million, reach $9.5 billion

• Country's current account deficit turns to surplus after 3 months.
• Remittances increased by 40% from last year to reach $2.9b in Aug.
• SBP chief expects forex reserves to reach $13 billion by June 2025.

KARACHI: Amid the incumbent government's strenuous efforts to tackle the multi-prong economic challenges faced by the nation, the State Bank of Pakistan's (SBP) foreign exchange reserves have witnessed an increase of $43 million to reach $9.5 billion in the week-ending September 13, 2024, The News reported on Friday.

With the country's forex reserves rising by $30 million to $14.827 billion, the commercial banks' reserves decreased by $13 million to stand at $5.317 billion.

The development comes as Prime Minister Shehbaz Sharif-led coalition government is eyeing to secure the International Monetary Fund's executive board's approval of the $7 billion bailout package agreed between Islamabad and the lender in July.

Last week, Finance Minister Muhammad Aurangzeb said that the country will succeed in securing the executive board's approval by September 25 — which has been delayed due to the $2 billion external financing gap which the government is aiming to address via support from bilateral and commercial lenders.

Islamabad owes $5 billion to Saudi Arabia in the form of cash deposits, along with 4$ billion and $3 billion from China and the United Arab Emirates (UAE), respectively.

Furthermore, the finance ministry has painted a rather seemingly uphill economic battle for the incumbent government in future with the country's foreign debt repayments expected to reach $100 billion over the next four years.

The revelation was made by the ministry during the National Assembly’s Standing Committee on Finance meeting with the former underscoring a  $5 billion external financing gap for a three-year period, the publication added.

The country's forex reserves have remained stable due to improvements in the current account balance, despite external debt repayments.

Meanwhile, the three-month current account deficit also improved to a surplus in August largely due to an influx of remittances.

Data from the SBP on Wednesday showed that the country recorded a current account surplus of $75 million, compared with a deficit of $246 million in the previous month and a shortfall of $152 million in August 2023.

The country, in the first two months of the fiscal year 2025, posted a current account deficit of $171 million — down 81% from a year ago — which essentially provides some relief against the backdrop of expected approval of the new IMF loan which is crucial for the country’s medium-term external stability.

Remittances increased to $2.9 billion in August, up 40% from a year earlier. These inflows rose by 44% to $5.9 billion in July-August FY25.

However, remittances fell by 2.0% on a month-on-month basis in August.

In a post-monetary policy analysts briefing last week, the SBP's governor Jameel Ahmad stated that he expects the momentum of remittances to continue due to a lower spread between the formal and informal markets.

He also anticipates that the current account deficit will stay within the projected range of zero to 1.0%of the gross domestic product (GDP) in FY25.

This contained current account deficit, combined with the expected inflows under the IMF programme, is expected to further strengthen the SBP’s foreign exchange reserves.

According to the governor, the central bank’s foreign exchange reserves are projected to reach $12 billion by March 2025 and $13 billion by June 2025.