Pakistan’s Forex stock surges $118M despite Indian war jingoism

Despite Pakistan-India border conflicts, Pakistan’s forex stock reserves bounced back by $118.1 million in the week ending May 2.

This surge lifted State Bank-held reserves to $10.333 billion, while commercial banks added $112.7 million to the mix, bringing total liquid reserves to $15.483 billion.

Tensions Flare but Forex Stock Holds Steady

Earlier this week, India launched Operation Sindoor, air and missile strikes in Pakistan-administered Kashmir and Bahawalpur, prompting Pakistan to down two dozen Indian drones.

Despite Moody’s warning that such hostilities could strain Pakistan’s economic recovery and access to external funding, the rupee slipped only 0.04 percent to Rs 281.47 per dollar. At the same time, reserves climbed, underscoring market confidence in Pakistan’s policies. On the other hand, Indian Rupee only fell 0.8 percent on May 7.

Analysts say the minimal currency movement and steady reserves underscore market confidence in Pakistan’s macroeconomic policies and external support mechanisms.

Medium-Term Trends and IMF Outlook

Since July 2024, SBP reserves have climbed $943 million (10.04 percent), even though they sit $1.38 billion below January levels. Luckily for Islamabad, robust expatriate remittances, an uptick in exports, and targeted SBP dollar interventions have driven recent inflows.

Pakistan also anticipates a $1 billion tranche from the IMF under its $7 billion program, pending board approval, which could further bolster the reserves buffer.

Outlook and Risks

Last week’s gain follows a modest $9 million uptick and recovers much of a $367 million drawdown in early April.

• SBP Reserves: Rose 1.16 percent from $10.214 billion to $10.333 billion.
• Commercial Banks: Increased 2.24 percent from $5.037 billion to $5.150 billion.
• Total Liquid Reserves: Jumped by $230.8 million to $15.483 billion.

In its latest policy statement, the SBP projected sustained current-account surpluses through FY 2025, targeting reserves of $14 billion by June if external conditions remain favorable.

However, sizeable external debt repayments and any prolonged border tensions pose serious risks to continued reserve growth.