KARACHI: In a positive development, the State Bank of Pakistan’s (SBP) foreign exchange reserves increased by $25 million, reaching $8.006 billion by the end of the week on April 26.

While the central bank did not disclose the specific sources of inflow that bolstered its forex holdings, industry experts suggest that the SBP’s typical strategy involves purchasing dollars from the interbank market to safeguard against declining reserves.

In the second week of April, the SBP paid $1bn against the maturity of Eurobonds but did not report a decline in its reserves. Market sources said the central bank was prepared to arrange payments and bought most of the payments from the interbank market.

On April 30, the State Bank received $1.1bn from the IMF under the Stand-By Arrangement, which will be reflected in next week’s numbers.

Stable exchange rate

Higher foreign exchange reserves have ended the exchange rate volatility.

This stability has changed, to some extent, the perception of Pakistan’s capacity to pay back its external repayment obligations on time.

Due to the stable exchange rate in both the interbank and open markets, foreign investors have shown increased interest in Pakistan. In April alone,

they injected $20.6 million into the economy, with $183.6m invested in treasury bills in FY24. This shift in investor sentiment is significant, considering the lack of interest in domestic bonds following the 2019 pandemic.

However, bankers said the country is still unable to launch fresh Eurobonds in the international market due to a prolonged weak image of the external account of the economy.

The government is trying to test its capability by launching $300 million Panda bonds. Financial experts said the Chinese market could help Pakistan raise this amount. If the government successfully launches the Panda bonds, this will encourage it to enter the international market for commercial borrowings.

Finance Minister Mohammad Aurangzeb expects the SBP foreign exchange reserves to be between $10 and $11 bn at the end of the current fiscal year.

During the week under review, the SBP said the country’s overall reserves stood at $13.136bn, including $5.310bn of commercial banks.

Published in Dawn, May 3rd, 2024