By Abdul Ghani

Pakistan’s foreign exchange reserves rose to $21.7 billion as of March 19, 2026, marking the highest level in four years, according to the Monthly Economic Update & Outlook released by the Finance Division.

The increase in reserves reflects an improvement in the country’s external liquidity position, supported by stronger inflows and better balance in the external account during the ongoing fiscal year.

Out of the total reserves, $16.4 billion were held by the State Bank of Pakistan (SBP), indicating a notable strengthening in central bank holdings. The remaining balance was maintained by commercial banks, contributing to the overall reserve position.

The rise in reserves comes alongside an improvement in key external indicators. During Jul-Feb FY2026, remittances increased by 10.5 percent to $26.5 billion, providing a steady inflow of foreign exchange. These inflows played an important role in supporting the reserve build-up.

In addition to remittances, foreign direct investment (FDI) also contributed to external inflows. Net FDI stood at $1.2 billion during the period, with China emerging as the largest source of investment.

Sector-wise, the power sector attracted the highest FDI inflows of $627.4 million, while financial business accounted for $523.2 million. These inflows added to the country’s foreign exchange resources and supported reserve accumulation.

Despite the improvement in reserves, the external sector continued to face pressures from a widening trade deficit. Total goods and services imports increased to $50.4 billion during Jul-Feb FY2026, compared to $46.0 billion last year, while exports remained relatively stable at $27.2 billion.

As a result, the trade deficit widened to $23.2 billion, reflecting higher import demand, particularly for key commodities such as petroleum crude and palm oil.

At the same time, the exchange rate showed relative stability. The Pakistani rupee stood at 279.2 per US dollar as of March 30, 2026, compared to 280.2 a year earlier, indicating limited volatility in the currency market.

The report highlights that the build-up in reserves strengthens the country’s ability to manage external shocks and meet its international payment obligations.

It also reflects improved liquidity conditions, particularly with higher holdings at the central bank level, which are considered a key indicator of financial stability.

Overall, the increase in foreign exchange reserves signals a more stable external position during FY2026, supported by steady inflows and improved management of external accounts, even as trade-related pressures persist.

Credit: INP-WealthPk