By Qudsia Bano

Pakistan's foreign exchange reserves increased to $21.8 billion by the end of March FY2025-26, providing stronger external buffers and supporting exchange rate stability amid a challenging global economic environment, according to the Pakistan Economic Survey 2025-26 released by the Ministry of Finance.

The rise in reserves reflects improvements in Pakistan's external sector, supported by robust workers' remittances, a broadly balanced current account and stronger financial inflows during the fiscal year.

According to the survey, total foreign exchange reserves stood at $21.8 billion at the end of March 2026, including $16.4 billion held by the State Bank of Pakistan and $5.4 billion maintained by commercial banks.

The reserves grew despite persistent  global trade pressures, regional geopolitical tensions, and volatility in international energy markets.

The Ministry of Finance notes that workers' remittances remained one of the most important contributors to reserve accumulation during FY2025-26. Remittance inflows increased by 8.2% to $30.3 billion during July-March FY2025-26 compared with $28 billion in the corresponding period of the previous fiscal year.

Saudi Arabia and the United Arab Emirates remained the largest sources of remittance inflows, providing vital support to Pakistan's balance of payments and foreign exchange position.

The survey highlights that the current account remained broadly stable during the fiscal year. Pakistan recorded a current account surplus of $72 million during July-March FY2025-26 despite a widening merchandise trade deficit.

The trade deficit increased to $27.9 billion from $22.7 billion a year earlier as imports rose in response to stronger domestic demand and economic recovery. However, growth in remittances and services exports helped offset the impact of higher imports.

According to the survey, the services sector made an increasingly important contribution to external sector stability. The services deficit narrowed to $2.1 billion from $2.3 billion in the previous year, supported primarily by strong growth in information technology exports.

ICT export remittances increased by 19.7% to $3.38 billion during July-March FY2025-26, reflecting the continued expansion of Pakistan's technology sector and its growing contribution to foreign exchange earnings.

The survey also notes an improvement in Pakistan's financial account position. During July-March FY2025-26, the financial account recorded a net inflow of $194 million compared with a net outflow of $1 billion during the same period last year.

Higher official disbursements and improved investor confidence contributed to the positive turnaround in financial flows.

Foreign direct investment also remained positive during the fiscal year. Net FDI inflows reached $1.4 billion, led by investment from the Chinese mainland and Hong Kong, with the power sector and financial services attracting the largest share of investment.

The Ministry of Finance notes that stronger reserve levels played an important role in maintaining exchange rate stability. The rupee remained largely stable during FY2025-26, helping contain imported inflation and improving confidence among businesses and investors.

Stable reserves also enhanced Pakistan's ability to meet external financing obligations, including imports, debt servicing requirements and other international payment commitments.

The survey highlights that improvements in reserves coincided with broader macroeconomic stabilization. Inflation remained largely under control during most of the fiscal year, the fiscal deficit narrowed significantly and economic growth accelerated to 3.7%.

According to the Ministry of Finance, maintaining adequate reserve levels remains a key policy objective as Pakistan seeks to strengthen external resilience and reduce vulnerability to global economic shocks.

The survey notes that continued growth in exports, remittances and foreign investment will remain important for sustaining reserve accumulation and supporting long-term external sector stability.

Credit: INP-WealthPk