SBP Dollar Buying Raises Questions Over Pakistan’s Reserve Strategy

KARACHI: Pakistan’s foreign exchange reserve recovery has strengthened the country’s external financial position, but the State Bank of Pakistan’s continued dollar purchases have renewed debate over how the central bank manages the currency market.

The central bank’s gross foreign exchange reserves have increased from around $3 billion at the beginning of 2023 to approximately $21.5 billion, according to figures cited in a recent assessment of its reserve-management strategy.

The improvement has been supported by dollar purchases from the interbank market. The SBP reportedly purchased $863 million in July 2026, even as Pakistan recorded a current account deficit of $445 million that month.

Reserve accumulation provides the country with a stronger buffer against external payment pressures and helps finance imports and other international obligations. It can also improve confidence in Pakistan’s ability to manage periods of market volatility.

However, the approach raises a policy question: how can the central bank continue accumulating dollars without creating excessive pressure on commercial banks and the wider foreign exchange market?

Banks need foreign currency to meet customers’ import payments and other legitimate requirements. Their access to dollars, the exchange rate offered to exporters and importers, and the incentives available for formal remittances all influence market activity.

The SBP has also raised its reserve targets, aiming for $23 billion by December 2026 and $25 billion by June 2027, according to the published assessment.

The challenge is to build a durable reserve position while ensuring that currency-market arrangements continue to support trade, investment and economic growth.

Reserve growth remains an important indicator of external stability, but its longer-term benefits will also depend on export performance, remittance inflows and sustainable foreign exchange earnings.