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In a significant development concerning Pakistan’s economic stability, the State Bank of Pakistan (SBP) reported a substantial decline of $2.65 billion in its foreign exchange reserves over the past week. According to official figures released by the central bank on Thursday, June 20, the reserves fell from $11.72 billion to $9.06 billion in just seven days.
This decline reflects mounting pressure on the country’s external account, largely attributed to government repayments on external debts, particularly commercial borrowings.
Reason Behind the Reserve Decline
The SBP clarified that the sharp fall in reserves was primarily due to external debt servicing obligations. The Government of Pakistan (GoP) made sizeable repayments on commercial loans, which substantially reduced the available reserves held by the central bank.
In recent years, Pakistan has relied heavily on external borrowing to support its balance of payments and bridge fiscal gaps, making debt repayments a routine but sizable drain on national forex reserves.
Total Liquid Reserves Drop to $14.4 Billion
The total liquid foreign exchange reserves held by the country — which includes both SBP and net reserves held by commercial banks — now stand at $14.4 billion, marking an overall weekly reduction of $2.6 billion.
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Despite the central bank’s reserves shrinking, the reserves held by commercial banks increased slightly, rising by $50 million to reach $5.333 billion. This indicates that while the government’s position weakened, private sector forex holdings remained relatively stable.
Fresh Inflows from Commercial and Multilateral Sources
While the reserves data reflect a major outflow, the SBP also noted a positive inflow of new external financing during the current week.
According to the central bank:
- The Government of Pakistan received $3.1 billion in commercial loans.
- Additionally, over $500 million was received from multilateral development partners.
These inflows are expected to reflect in the next week’s reserves data, potentially offsetting part of this week’s decline.
Implications for the Economy
This sharp decline in reserves raises concerns over Pakistan’s short-term external financing needs and its ability to manage upcoming debt maturities. However, the fresh inflow of over $3.6 billion provides some breathing room for the government in maintaining exchange rate stability and import cover.
Economic experts have stressed the importance of sustainable borrowing, long-term fiscal reforms, and structural adjustments to avoid repeated reserve crunches. The International Monetary Fund (IMF) and other international partners are closely monitoring Pakistan’s reserve position as part of their ongoing financial support programs.
