After months of economic strain, Pakistan’s foreign exchange reserves are showing tentative signs of recovery.
By the end of November 2024, total liquid reserves climbed to USD16.6 billion, with USD 12 billion held by the State Bank of Pakistan and USD 4.6 billion by commercial banks.
This recent uptick stems primarily from a USD 500 million inflow from the Asian Development Bank (ADB) and a one-year extension of a USD 3 billion deposit from the Saudi Fund for Development.
Initially agreed upon in 2021, this deposit has been rolled over annually since 2022, reflecting Saudi Arabia’s continued financial support and bilateral ties with Pakistan.
The rise in reserves has stabilized the Pakistani rupee against the US dollar, offering a temporary reprieve to the country’s struggling economy. For a nation burdened by recurring financial crises, this provides short-term relief, but analysts caution that Pakistan’s economic recovery cannot rely solely on loans and deposits.
Structural reforms and export-led growth remain the only sustainable solutions.
External capital inflows into Pakistan have been inconsistent, revealing deeper economic challenges. From July to October 2024, net inflows turned negative at USD 729 million compared to a USD1.3 billion positive inflow during the same period in 2023.
Despite initial gains from the IMF Stand-by Facility, investor confidence has waned.
According to a recent report, multilateral loans have also underperformed. Out of the USD 4.57 billion targeted from agencies like the World Bank, ADB, and Islamic Development Bank, only USD 483 million—just 10.6% of the annual target—materialized in the first quarter of 2024-25 (State Bank of Pakistan, 2024).
Pakistan’s bond issuance plans have stalled due to investor hesitancy, a consequence of the country’s perceived financial risks. Foreign Direct Investment, a critical economic driver, fell 20% year-on-year in October 2024 to USD132 million.
For the first four months of 2024-25, total FDI barely reached USD1 billion. Despite initiatives like the Special Investment Facilitation Council, foreign investors remain wary, citing deteriorating law and order and policy instability as major deterrents.
Trade performance further underscores Pakistan’s economic vulnerabilities. From July to October, exports of goods and services grew by 8.6%, while imports surged by 13%, widening the trade deficit by 19%.
Textile exports, which account for the bulk of foreign earnings, grew at a sluggish 5.1%, highlighting the urgent need for modernization and diversification in this sector.
In an otherwise bleak economic picture, workers’ remittances have offered a rare bright spot. Remittances rose 34.6% year-on-year by October 2024, supported by exchange rate stability and improved formal remittance channels.
Growth peaked at 47.6% in July but slowed to 23.7% by October (State Bank of Pakistan, 2024). This underscores the importance of policies that sustain confidence in formal financial systems.
Economists stress that Pakistan’s economic future depends on shifting from debt-driven reliance to export-led growth. Increasing exports, modernizing industries, and attracting meaningful investment are key to breaking the cycle of financial instability.
Without decisive reforms, the country risks falling deeper into the debt trap, undoing the recent gains in reserves and remittances.
For now, the modest rise in reserves signals cautious optimism. However, without a long-term economic vision that prioritizes exports, investment, and structural stability, this reprieve could be short-lived.
