ISLAMABAD: The State Bank of Pakistan (SBP) on Tuesday disclosed that it purchased $7.8 billion from the open market since June 2024, raising the country’s foreign exchange reserves to $14.5bn by end-June 2025 — a move aimed at ensuring external stability but one that could otherwise have strengthened the rupee and boosted imports.

Testifying before the National Assembly’s Standing Committee on Finance and Revenue, SBP Deputy Governor Dr Inayat Husain said the central bank’s interventions were aimed at absorbing excess dollar liquidity to build reserves. “If we do not mop up excess funds, the rupee would appreciate sharply — this has no impact on exports, but significantly increases imports,” he warned.

Dr Inayat explained that higher reserves helped Pakistan meet its external obligations without relying on fresh foreign loans. While the rupee had recently come under pressure due to a current account deficit —contrasting with last year’s surplus — this was now easing due to coordinated measures by the government and SBP.

Responding to queries from committee chairman and former finance minister Syed Naveed Qamar, the SBP deputy chief asserted that the rupee was currently “fairly valued” based on the Real Effective Exchange Rate model. Future exchange rate movements, he added, would depend on foreign inflows and market dynamics.

Central bank says foreign exchange reserves built through market purchases to support external stability

On the policy rate, currently at 11pc, Dr Inayat acknowledged criticism over insufficient reductions but said the central bank was pursuing a conservative stance to avoid repeating past cycles of economic overheating and crashes. “The core inflation is at 7.4pc, and headline inflation around 4pc, but risks are rising,” he said, citing potential pressures from higher wheat, oil, energy prices, and new taxes.

He warned that inflation could edge up in the coming months due to the low base effect and external shocks but was expected to remain within the SBP’s 5-7pc target band in the medium term. Emphasising that the SBP’s mandate includes both price and financial stability, he said building reserves was essential for crisis resilience. “Current reserves provide 2.3 months of import cover, but we need at least three months, plus additional buffers to absorb unforeseen shocks,” he said. “Growth may be gradual, but it must be sustainable.”

CSR bill deferred

The standing committee deferred consideration of the Corporate Social Responsibility (CSR) Bill 2025, moved by MNA Dr Nafisa Shah, after opposition from the government and some PPP members. They argued that making CSR mandatory would amount to a form of taxation or regulatory burden, rather than encouraging voluntary contributions. The Ministry of Finance and the Securities and Exchange Commission of Pakistan were directed to present their proposals at the next meeting.

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Sales tax in Fata/Pata

The committee also reviewed the implementation of sales tax measures introduced in the 2025-26 federal budget for the erstwhile Fata and Pata regions. Lawmakers raised concerns over the impact of sales tax hikes on local economies, particularly in underdeveloped areas, and stressed the need for data-driven policymaking.

Committee chair Syed Naveed Qamar criticised the lack of concrete evidence on employment and development benefits from tax policies and called for a shift in focus towards employment generation and industrial development rather than profit-based incentives.

Lawmakers expressed dissatisfaction over unfulfilled budget promises, including tax exemptions for marginalised regions, and warned against the misuse of fiscal incentives. The absence of the Secretary for the Ministry of Industries and Production was also noted with concern. As a result, the committee postponed the agenda item on the new Electric Vehicle Policy until its next session, directing that the Secretary must attend for meaningful discussions.

Published in Dawn, August 27th, 2025