Pakistan's Forex Reserves Near $18 Billion, But Trade Deficit Raises Fresh Concerns

Pakistan's foreign exchange reserves are inching closer to the country's $18 billion target for FY26, supported by inflows from key allies and IMF-backed reforms.

However, economists warn that a widening trade deficit, upcoming debt repayments and uncertainty over remittances could put renewed pressure on the country's external finances.

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Key points generated by AI, verified by newsroom

• Pakistan's forex reserves reached $17.2B, nearing $18B goal.
• Saudi deposits, SBP dollar purchases boosted current foreign reserves.
• Widening trade deficit, June payments threaten rupee stability.

Pakistan's foreign exchange reserve is about to reach USD 18 billion for FY26, but expanding trade deficit poses a challenge, according to a media report on Friday.

The country's foreign exchange reserves increased by USD 43 million to reach USD 17.2 billion for the week ending May 29, putting the nation on track to reach its USD 18 billion target by the end of June, the State Bank of Pakistan (SBP) data revealed.

Financial analysts view the growth in foreign reserves as a positive indicator, though they caution that a widening trade gap could trigger a substantial current account deficit this fiscal year, The Dawn newspaper reported.

The analysts also pointed out that payments to foreign creditors are due in June.

Earlier in April, Pakistan repaid a USD 3.45 billion deposit to the United Arab Emirates after the UAE government refused to extend the facility term.

Pakistan’s foreign exchange reserves got a boost in April when Saudi Arabia deposited USD 3 billion with the SBP after an agreement, which also extended a USD 5 billion deposit by Saudi Arabia for a further three years.

Pakistan’s foreign exchange position, though under pressure, remains part of a broader stabilisation effort under the IMF-supported reforms.

To boost reserves and handle foreign debt, the apex Bank is buying dollars from the inter-bank market while gradually strengthening the Pakistani rupee (PKR) to manage the exchange rate.

“More important is the managed exchange rate, which may burst after June, after large payments are made before the end of the fiscal year on June 30,” said Atif Ahmed, a currency expert.

He added that since the US dollar has been appreciating against all regional currencies except Pakistan’s, it is obvious that the rupee is under depreciation pressure.

According to Atif, the purchase of US dollars from the inter-bank market by SBP makes no difference to the dollar rates since the price mechanism in the banking market does not exist anymore.

“The rate is determined by the central bank,” he said.

Financial experts said the growing trade deficit would affect both the exchange rate and the current account deficit. The current account had a surplus of USD 1.8 billion in FY25.

“The trade deficit for the 11 months of FY26 has soared to USD 35 billion, which is seen as alarming by economic managers of the country. It will definitely take the current account deficit to an unexpected level, putting pressure on PKR to depreciate against USD,” said a financial expert.

Currency dealers are forecasting a drop in remittance inflows, making the FY26 target of USD 41 billion increasingly unattainable.

“The remittances depend upon the situation in West Asia as more than 50 per cent of remittances come from this region,” said the expert.

He held the Ministry of Finance responsible for such a large trade deficit and said that the country would face a tough time in FY27 with a higher current account deficit.

The import bill went up to USD 62.66 billion, mainly due to an increase in imports of luxury items and foodgrains.

The country’s total foreign exchange reserves at the end of May were USD 22.63 billion, including USD 5.44 billion held by commercial banks. 

(Disclaimer: This report has been published as part of the auto-generated syndicate wire feed. Apart from the headline, no editing has been done in the copy by ABP Live.)