Pakistan’s foreign exchange reserves are nearing the government’s $18 billion target for FY26, but a widening trade deficit, mounting external payment obligations and pressure on the rupee are raising concerns about the country’s economic stability, PTI reported.Data released by the State Bank of Pakistan (SBP) showed the country’s foreign exchange reserves increased by $43 million to $17.2 billion during the week ended May 29, putting it on track to meet the year-end target.However, financial analysts told The Dawn newspaper that the reserve build-up masks deeper vulnerabilities in Pakistan’s economy, particularly the sharp deterioration in its trade balance.The analysts also pointed to foreign debt repayments due in June as another challenge for the country’s external position.Pakistan’s reserves received support earlier this year after Saudi Arabia deposited $3 billion with the SBP and extended an existing $5 billion deposit facility for another three years. The country had also repaid a $3.45 billion deposit to the United Arab Emirates in April after the UAE declined to extend the arrangement.Despite the improvement in reserves, experts warned that Pakistan’s managed exchange-rate policy could come under pressure.“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,” currency expert Atif Ahmed was quoted as saying.He added that while the US dollar has strengthened against most regional currencies, Pakistan’s rupee continues to face depreciation pressure.According to Ahmed, the SBP’s purchases of dollars from the inter-bank market have limited influence on pricing because, “The rate is determined by the central bank.”
Trade gap widens
Economists identified the growing trade deficit as one of the biggest threats to Pakistan’s economic outlook.“The trade deficit for the 11 months of FY26 has soared to $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,” a financial expert told the newspaper, PTI quoted.The report noted that Pakistan had recorded a current account surplus of $1.8 billion in FY25, but the sharp increase in imports is expected to reverse that trend.The country’s import bill climbed to $62.66 billion, driven largely by higher imports of luxury goods and foodgrains.
Remittance concerns add to pressure
Currency dealers also expressed concern over remittance inflows, with some warning that Pakistan’s FY26 target of $41 billion may be difficult to achieve.“The remittances depend upon the situation in West Asia as more than 50 per cent of remittances come from this region,” the expert said.The report added that economic managers could face a difficult FY27 if the trade deficit remains elevated and the current account moves back into deficit.Pakistan’s total foreign exchange reserves stood at $22.63 billion at the end of May, including $5.44 billion held by commercial banks.
