Pakistan’s foreign exchange reserves continue to improve, but a widening trade deficit is creating fresh economic concerns. Financial experts warn that growing import payments could offset gains in reserves and remittances.
According to the State Bank of Pakistan, foreign exchange reserves increased by $43 million. As a result, total reserves reached $17.2 billion during the week ending May 29.
The improvement brings reserves closer to the central bank’s fiscal year target of $18 billion. However, economists caution that large external payments due in June could place additional pressure on reserves.
Experts Warn of Growing External Risks
Financial analysts view the increase in reserves as a positive development. Nevertheless, they remain concerned about the expanding trade imbalance.
Experts believe the widening trade deficit could contribute to a larger current account deficit during fiscal year 2025-26. Consequently, pressure on Pakistan’s external account may intensify in the coming months.
The State Bank has continued purchasing dollars from the interbank market. At the same time, authorities have managed the exchange rate through a gradual appreciation of the rupee against the dollar.
Currency expert Atif Ahmed warned that the current exchange rate strategy may face challenges after June. He noted that significant foreign debt repayments remain due before the fiscal year ends on June 30.
Rupee Faces Depreciation Pressure
Ahmed argued that the dollar has strengthened against most regional currencies. However, Pakistan’s rupee has remained relatively stable during the same period.
According to him, this trend suggests that depreciation pressure on the rupee continues to exist. He also claimed that the central bank plays a major role in determining exchange rate movements.
Furthermore, Ahmed stated that State Bank dollar purchases have limited impact on market pricing. He argued that traditional price mechanisms in the banking market no longer function independently.
As Pakistan approaches the end of the fiscal year, policymakers face the challenge of maintaining reserve growth while managing trade deficits and upcoming external obligations.
