Pakistan central bank's dollar-buying slows down in December

The State Bank of Pakistan's (SBP) buying of dollars from the interbank foreign exchange market was slower in December compared with November amid banks' arrangement of the greenback to fulfil commitment of imports after a surge in shipments.

The SBP bought nearly $536 million in December compared with $1.151 billion worth of dollars bought in November, according to data released by the central bank.

The central bank started releasing data of dollar-buying from June last year. Since then, it has bought nearly $5.523 billion worth of dollars from the interbank market.

The buying slowed down in December because of higher demand from importers where shipments during the month recorded an increase of 16.4% to $5.394 billion compared with December 2023.

According to the latest data received from the Pakistan Bureau of Statistics, during the eight months of the current fiscal year, imports surged by 7.6% to $37.875 billion compared with $35.199 billion of the same period in the preceding year.

During the seven months that the SBP bought dollars, five of them helped improved the foreign exchange reserves on a monthly basis.

However, in two of those months, reserves recorded a decline despite the SBP buying dollars, said an analyst. The overall buying helped the country’s foreign exchange reserves improve by $2.6 billion, while the remaining amount helped make debt payments.

The government has paid around $7.792 billion as principal and interest payments during the six months of the current fiscal year. Of this, nearly $5.060 billion has been paid as principal amount while the rest constituted interest payments, according to SBP data.

As of March 14, the SBP has foreign exchange reserves of nearly $11.146 billion while other banks have reserves of $4.869 billion.

At the time of announcement of monetary policy on March 10, the central bank said that import volumes have been rising consistently in line with the pickup in economic activity.

The uptick in some global commodity prices further pushed up import payments in January. However, robust workers' remittances, along with relatively moderate growth in exports, proved instrumental in financing the elevated imports.

The Monetary Policy Committee assessed that these developments are broadly in line with its expectation, and reaffirmed the FY25 current account balance projection of a surplus and a deficit of 0.5% of GDP. Nonetheless, net financial inflows remained weak, mainly due to a shortfall in planned official inflows.

At the same time, the MPC noted that the majority of debt repayments for the year have already been made. With lower debt repayments and expected realization of planned official inflows in the remaining months of FY25, the SBP's foreign exchange reserves are likely to reach above $13 billion by June.

Going forward, the MPC emphasized the importance of strengthening external buffers in the presence of heightened global economic uncertainty.