KARACHI: The foreign exchange reserves of the State Bank of Pakistan (SBP) dropped sharply by $2.7 billion in a week, falling to a three-year low and indicating that the $14bn target for FY25 will not be achieved.

The SBP reported on Thursday that during the week ending June 20, its reserves decreased by $2.657bn to $9.064bn due to external debt repayments by the government, primarily for commercial borrowings. In comparison, reserves stood at $9.8bn in FY22.

This marks the largest weekly decline in SBP’s foreign exchange reserves during the current fiscal year — a year that had otherwise seen relatively better performance compared to the previous two.

The last-minute repayment of $2.7bn appears to have disrupted the SBP’s projections. The bank had previously revised its FY25 reserves target upward from $13bn to $14bn.

According to financial sector analysts, the government may have failed to roll over expected commercial loans — a strategy successfully used in the past, particularly with Chinese banks — or the payment was overdue and risked higher penalties if delayed further.

Steep fall of $2.7bn sees reserves at three-year low

“It was surprising for the commercial market, as we were not aware that such a large payment was due at the end of the financial year,” said a currency expert.

However, the SBP said it had already received $3.6bn in commercial loans, which would be reflected in the next weekly reserves report.

“During the current week, SBP has received GOP commercial loans amounting to $3.1 billion and over $500 million in multilateral loans. These inflows will be reflected in SBP’s FX reserves for the week ending June 27, 2025,” said the central bank.

Even with these inflows, the SBP will not meet its $14bn target. With current reserves at $9.064bn, the addition of $3.6bn will take the total to $12.664bn — still short of the target, and with only a few days left in the fiscal year.

Throughout FY25, the SBP has been actively buying dollars from the currency market. However, currency dealers are unsure of the total volume purchased by the central bank during the year.

“It may be that $6-$8bn was bought by the SBP to keep reserves close to the IMF target,” said Atif Ahmed, a dealer in the inter-bank market. “SBP has tightly controlled dollar sales in the banking sector. The market is short on dollars for importers since the central bank is taking a major share,” he added.

Meanwhile, remittances have continued to rise, and bankers estimate that total remittance inflows for FY25 will exceed a record $38bn.

As of June 20, the country’s total liquid foreign reserves stood at $14.397bn, including $5.332bn held by commercial banks.

Published in Dawn, June 27th, 2025