SBP forex reserves expected to increase to $13.5-14.5bn by June: brokerage report

KARACHI: Pakistan’s central bank foreign exchange reserves are expected to rise to $13.5-14.5 billion by the end of this fiscal year, above the $13 billion target set by the International Monetary Fund (IMF) under its Extended Fund Facility programme, thanks to low external financing requirements.

This projection comes from a report by the brokerage house Topline Securities, ahead of an IMF team’s visit to Pakistan next month to evaluate the country’s economic performance. The first IMF review is scheduled for March.

The release of the next tranche of $1 billion is contingent on the government meeting various criteria. The report indicates that the government is on track to comply with the IMF’s requirements related to the net international reserve target for September and December 2024. Additionally, the net domestic assets of the State Bank of Pakistan (SBP) are also expected to remain below the ceiling target. The report further suggests that the country is likely to meet targets for foreign currency swaps/forwards, the number of new tax filers and the primary budget deficit.

The report stated that external debt servicing for fiscal year 2025 is projected to be $26 billion. According to comments made by the central bank governor during an analyst briefing on Monday, of this amount, $16 billion is expected to be either rolled over or refinanced, resulting in a net repayment of $10 billion.

“With current account breakeven to surplus of $0-2 billion for FY25, we revise down the gross financing requirement (net of rollover/refinance amount) from earlier $11.3 billion to $8.7 billion, which we believe is a multi-year low,” the report said.

“We believe the successful start of the new IMF programme indicates that Pakistan’s external financing requirement is manageable for the programme tenor of three years. This is also mentioned in the detailed report of the IMF regarding a financing gap of $5 billion from FY25-27, which we believe Pakistan arranged through seeking commitments from commercial banks and select friendly countries,” it added.

According to the SBP’s monetary policy statement, while net financial inflows were modest during the first half of FY25, they are expected to improve moving forward, as a significant portion of official debt online,” said easypaisa Bank in a statement. repayments has already been made. As a result, the improved current account outlook, coupled with anticipated financial inflows, is likely to elevate the SBP’s foreign exchange reserves above $13 billion by June 2025.

Currently, SBP reserves stand at $11.45 billion, which is sufficient to cover over two months’ worth of imports.

The report also aligns with the SBP’s projection that the current account will remain at breakeven or in surplus during this fiscal year. The central bank noted that the outlook for the current account balance has significantly improved due to a surge in remittances, and it is now expected to remain within a range of surplus to a deficit of 0.5 percent of GDP in FY25.

Remittances rose to $17.8 billion during the July-December period of FY25, showing a 33 per cent increase over the same period last year.