Heavy debt repayments: Forex reserves drop by over USD1bn

KARACHI: The State Bank of Pakistan’s (SBP) foreign exchange reserves fell by more than USD 1 billion in the first week of FY27 due to heavy external debt repayments, after reaching a record high of USD18.4 billion at the end of the previous fiscal year.

The SBP’s achievement of building foreign exchange reserves to USD 18.47 billion proved short-lived, as its reserves fell below the USD 18 billion mark within a week due to debt servicing.

According to weekly report issued on Thursday, during the last week, SBP’s foreign exchange reserves decreased by USD 1.245 billion to USD 17.226 billion as of July 10, 2026 compared to USD 18.471 billion as of July 3, 2026. The decline in SBP’s reserves is due to external debt repayments, the report said.

Net foreign exchange reserves held by commercial banks also declined by approximately USD 68 million during the week, falling to USD 5.449 billion from USD 5.517 billion a week earlier.

As a result of decline in the SBP and commercial banks’ reserves, the country’s total liquid foreign exchange reserves dropped to USD 22.675billion during the week ended July 10, 2026, compared with USD 23.988 billion in the previous week.

SBP has been striving to rebuild the country’s foreign exchange reserves over the past two years. Despite making external debt repayments of around USD 9 billion during the last quarter of FY26, the central bank successfully achieved its reserve target of USD18 billion by the end of June 2026. However, the milestone could not be maintained, as heavy external debt servicing in the first week of July led to a sharp decline in the reserves.

SBP Governor Jameel Ahmad remains optimistic that the country’s foreign exchange reserves will continue to strengthen and are likely to reach USD 20 billion by December 2026.

Speaking at a recent media briefing, he said the increase in reserves has largely been driven by the SBP’s purchases of dollars from the domestic foreign exchange market. He noted that, unlike a few years ago when the state bank was a net seller of dollars, the SBP is now a net buyer, reflecting improved external sector dynamics supported by higher home remittances inflows.

Copyright Business Recorder, 2026