Pakistan central bank slows dollar buying amid debt pressures

The State Bank of Pakistan’s (SBP) aggressive dollar buying from the interbank market slowed in April, with purchases amounting to $473 million, down significantly from $860 million in March, according to official data.

Since launching the dollar accumulation drive in June 2024, the central bank has bought a total of $7.23 billion, with the peak recorded in November at $1.15 billion, and the lowest in January this year at just $154 million.

The SBP’s buying spree was part of a broader policy effort to rebuild foreign exchange reserves, ensure timely external debt repayments, and provide a cushion for currency stability. The move followed years of dwindling reserves and volatile exchange rate movements that had previously rattled investor confidence and constrained policy flexibility.

$23B in external debt due in FY26

Pakistan is expected to repay over $23 billion in external debt during the current fiscal year, including multilateral, bilateral, bond, and commercial obligations, according to official sources. This follows a hefty $26 billion repayment in the fiscal year that ended on June 30.

Out of the $23 billion, about $12 billion are in the form of deposits—largely rollover-dependent—with major creditor nations.

Pakistan expects to renew deposits from its key strategic partners, including: $4 billion from China (SAFE deposits), $5 billion from Saudi Arabia, $3 billion from the UAE , and around $700 million from Kuwait.

“The slowdown in SBP’s dollar purchases may reflect seasonal adjustments, but the central bank seems to have front-loaded its buying to pre-empt upcoming debt obligations,” said a foreign exchange dealer. “Maintaining this buffer is crucial given the country’s external financing needs remain heavy.”

Exchange companies claim $9B supply

Adding to the dollar inflow narrative, the Exchange Companies Association of Pakistan claimed they have sold $9 billion worth of dollars to the banking system over the past year. This supply, combined with SBP’s strategic purchases, has supported the rupee, stabilized exchange markets, and enabled timely debt servicing.

Meanwhile, remittances from overseas Pakistanis hit a record $38.3 billion in FY2024-25, a rise of $8 billion compared to the previous year.

Analysts attribute this sharp rise partly to a government-backed incentive scheme, which was briefly under threat of being withdrawn. The scheme, estimated to cost around PKR 86 billion, was reinstated last week by Prime Minister Shehbaz Sharif, following widespread outcry from the overseas Pakistani community.

“The continuation of the subsidy for inward remittances is a smart move,” said a market observer. “It not only sustains foreign exchange inflow but also signals stability to expats and markets alike.”

Stabilized, but fragile

While the recent data suggests improved macroeconomic coordination and a stronger reserve position, experts warn that the sustainability of external financing remains fragile without broader reforms.

“The real test will come in Q3 and Q4 of FY2026, when the rollover talks become more difficult and global conditions tighten,” noted a senior economist at a multilateral lender. “SBP’s buffer helps, but Pakistan still needs durable export growth, stronger investment inflows, and fiscal discipline.”

The SBP is expected to continue a calibrated approach to reserve management, balancing currency stability with the demands of a large external financing pipeline.