Forex reserves rise to cover imports for 2 months, SBP governor confirms

• Liquid foreign exchange reserves now stand at $10 billion according to the SBP.
• SBP chief says IMF disbursement eased pressure on rupee.
• Ahmad says the fall in inflation has had a positive impact on monetary policy.

Pakistan’s foreign exchange reserves have risen to cover two months’ worth of imports after the arrival of the first tranche of the International Monetary Fund’s (IMF) 37-month loan deal under the $7 billion Expanded Facility (EFF), Governor State Bank of Pakistan (SBP) Jameel Ahmed said on Wednesday.

In a much-needed boost to the country’s economic challenge, the State Bank of Pakistan (SBP) received the first tranche of $1.03 billion (SDR 760 million) on Monday, September 30, 2024.

Pakistan had been working to implement what were seen as “stringent” terms to complete the loan program agreed in July, which Prime Minister Shehbaz Sharif had repeatedly hoped would be Pakistan’s last.

Liquid reserves now stand at $10 billion, providing much-needed stability to the country’s foreign exchange position.

“Foreign reserves have stabilized and we expect further improvements,” Ahmed told a banking conference.

He pointed out that the recent IMF disbursement has eased pressure on the rupee, ensuring a smooth supply of dollars in the market.

“[Overseas workers’] Remittances have increased and the supply of dollars has improved,” Ahmed said, noting that lower inflation had a positive impact on monetary policy.

The governor expressed satisfaction with the government’s fiscal situation, which he said has also improved.

“The rate of lending by banks has decreased,” he further said.

Refuting the impression that there is a delay in repayments to commercial banks, Ahmad said the government was not short of funds. “We are making early repayments of bank loans,” the governor said.

Ahmed also outlined the central bank’s strategy to modernize Pakistan’s banking sector, stressing that promoting innovation in the banking sector could boost economic growth.

“We plan to fully launch digital banking by 2025,” he said, noting that the initiative will enhance financial inclusion and accessibility for millions of Pakistanis.

The SBP governor has unveiled further plans to expand financing of Small and Medium Enterprises (SMEs), aiming to increase the current volume from Rs 550 billion to Rs 1.1 trillion over the next five years.

This will support small and medium enterprises, key drivers of economic activity in the country.

As the popularity of digital banking continues to grow in Pakistan, Ahmed recognized the growing risks of online fraud.

“Banks have been warned to strengthen their cyber security measures,” he said, stressing the importance of safeguarding the growing number of users, which currently stands at 12 million for mobile banking and is growing at an annual growth rate of 70%.

The central bank governor pointed out that branchless banking already served 59 million customers, while the use of mobile and online banking continued to grow, with internet banking growing by 30% annually.

The governor also highlighted the phenomenal success of Raast, Pakistan’s digital payments platform, which has so far processed transactions worth Rs 19 trillion since its launch in 2021.

“Daily transactions on Raast now exceed 2.5 million and the system is linked with Middle Eastern software to facilitate low-cost remittances for Pakistanis abroad,” Ahmad noted, adding, “This will make it easier and cheaper for expatriates to send money back home.”

Citing SBP’s continued push towards a more modern, digital-based banking environment, Governor Ahmed said innovation is the future of banking and a key factor in Pakistan’s economic growth.