SBP expects FX to stay above $9bn despite debt servicing

Erum Zaidi
Tuesday, Jun 11, 2024

KARACHI: The State Bank of Pakistan (SBP) expects that the foreign exchange reserves will remain above $9 billion by the end of this month, even after clearing external repayment during this period.

During a post-policy briefing on Monday, Governor of the SBP Jameel Ahmad expected the reserves to stay above $9 billion, despite repayment of around $1 billion in June 2024.

The SBP cut its key interest rate by 150 basis points to 20.50 per cent after inflation eased in the country.

In the fiscal year 2024, the total external debt to be serviced is $24.3 billion, with $3.9 billion allocated for interest payments and the remaining $20.4 billion for principal repayments. Up to the 11th month of this fiscal year, $10.8 billion has already been paid, as reported by the SBP. Additionally, an additional $1 billion payment is anticipated in FY24, bringing the total repayment to $12 billion. This is in addition to the rollovers of $11-12 billion this fiscal year.

A total of $1.5 billion in dividends have been repatriated in FY24, and it is expected that FY25 will commence with no backlog. The SBP governor clarified that the "SBP does not set a specific target level for the real interest rate".

In its monetary policy statement, The SBP emphasised the importance of promptly mobilising financial inflows to meet the country's needs for external financing and to boost its foreign exchange reserves, which enable it to withstand external shocks and promote sustainable economic growth.

“Going forward, the Committee stressed that timely mobilisation of financial inflows is essential to meet the external financing requirements and further strengthen foreign exchange buffers for the country to effectively respond to any external shocks and support sustainable economic growth,” the SBP said in the statement.

The current account posted a surplus for the third consecutive month in April fuelled by strong growth in remittances and exports, which more than offset the uptick in imports. During July-April FY24, the current account deficit narrowed significantly to $202 million.

In the same period, exports grew by 10.6 per cent. Conversely, imports decreased by 5.3 per cent during the same period due to lower international commodity prices, better domestic agriculture output and moderate economic activity. Workers’ remittances also remained robust in recent months, reaching an all-time high of $3.2 billion in May 2024. The resultant lower current account deficit, along with improved FDI and the disbursement of the Stand-by Arrangement tranche in April, has facilitated ongoing large debt repayments and supported the SBP's FX reserves.