Pakistan’s forex reserves hit four-year high in March

ISLAMABAD: Pakistan’s foreign exchange reserves rose to $21.7 billion as of March 19, 2026, reaching their highest level in four years, according to the Monthly Economic Update & Outlook released by the Finance Division. The increase reflects an improvement in the country’s external liquidity position amid stronger inflows and better management of external accounts during the ongoing fiscal year.

Of the total reserves, $16.4 billion were held by the State Bank of Pakistan (SBP), indicating a strengthening of the central bank’s financial buffers, while the remaining amount was maintained by commercial banks. Higher central bank holdings are widely regarded as a key indicator of financial stability and the country’s capacity to meet international payment obligations.

Remittances and FDI support reserve build-up

The report highlighted that workers’ remittances played a significant role in the reserve accumulation, increasing by 10.5% to $26.5 billion during July–February FY2026. These steady inflows provided essential support to the external account and helped stabilize the balance of payments.

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Foreign direct investment (FDI) also contributed to the improved external position, with net FDI reaching $1.2 billion during the same period. China emerged as the largest source of investment. Sector-wise, the power sector attracted the highest inflows at $627.4 million, followed by the financial business sector with $523.2 million, further strengthening the country’s foreign exchange resources.

Trade deficit remains a key challenge

Despite the improvement in reserves, the external sector continued to face pressure from a widening trade deficit. Total imports of goods and services increased to $50.4 billion during July–February FY2026, compared to $46.0 billion in the same period last year. Exports remained relatively stable at $27.2 billion, resulting in a trade deficit of $23.2 billion.

The rise in imports was largely driven by increased demand for key commodities, particularly petroleum crude and palm oil, which continue to exert pressure on the country’s external balance.

Exchange rate shows relative stability

The report also noted relative stability in the currency market. 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 despite ongoing external challenges.

Improved resilience to external shocks

According to the Finance Division, the build-up in foreign exchange reserves enhances Pakistan’s ability to manage external shocks and meet its international financial obligations. The improvement signals more stable liquidity conditions and reflects better management of external accounts during FY2026, even as trade-related pressures persist.