FX reserves are set to reach $12bn by end-November: SBP governor

KARACHI: Pakistan’s foreign exchange reserves are consistently improving and are expected to reach $12 billion by the end of this month, the country’s central bank chief Jameel Ahmad said on Friday.

Even though the country has repaid $1 billion in external debt, the reserves will increase to $12 billion by the end of November, Ahmad, the governor of the State Bank of Pakistan told reporters on the sidelines of the event titled, ‘Enabling Green Financing and Green Bonds via Credit Enhancement Solutions’, organised by InfraZamin Pakistan.

Ahmad’s comments come as a team from the International Monetary Fund (IMF) is scheduled to visit Pakistan next week to assess the country’s progress on its $7 billion bailout package.

The improvement in foreign exchange reserves is attributed to a reduction in the current account deficit amid robust workers’ remittances, increased exports, and the receipt of the first tranche from the IMF’s Extended Fund Facility programme.

As of November 1, the SBP’s reserves stood at $11.17 billion -- enough to cover more than two months of imports. According to the SBP’s monetary policy statement released this week, with a manageable current account deficit and the realisation of planned official inflows, foreign exchange reserves are projected to increase to around $13 billion by June 2025.

According to the SBP, the gross financing requirements are expected to be met. Out of a total of $26.1 billion in external repayments for FY25, the country has to repay $6.3 billion in the remaining eight months of the current fiscal year.

The governor highlighted that Pakistan has four sources of foreign inflows, with remittances being particularly significant. Remittances surged to $3.1 billion in October and are expected to reach $34 billion for the current fiscal year. The SBP’s annual report on Pakistan’s economy, issued last month, projects remittance flows to be between $32 billion and $33 billion in FY25. In FY24, the country received $30.2 billion from overseas workers in remittances.

Ahmad also noted that exports are on the rise, and foreign direct investment is showing some improvement. Inflows through the Roshan Digital Account amounted to $200 million in October. He stated that Pakistan has fulfilled all requirements of the Asian Development Bank (ADB) and is anticipated to receive $500 million in loans soon. The lender recently approved this policy-based loan to support the nation’s climate change initiatives and disaster risk reduction efforts.

According to Ahmad, many positive developments are occurring in the economy. Credit to the private sector is increasing as economic activity gains momentum amid recovery and declining inflation. The country’s real gross domestic product (GDP) growth is expected to exceed previous forecasts based on improvements observed in the first four months of this fiscal year. This week, the SBP indicated that it anticipates real GDP growth in FY25 to be better than earlier assessments while remaining within the 2.5 to 3.5 per cent range.

Addressing the event, the governor highlighted the global urgency to address climate change, citing massive natural disasters such as the catastrophic floods in 2022, which caused economic losses of approximately $30 billion in Pakistan.

Ahmad reiterated Pakistan’s commitment to the Paris Agreement, which includes reducing emissions by 15 per cent by 2030, with an additional 35 per cent reduction contingent upon external financing. He also noted plans to generate 60 per cent of all energy from renewable sources. He shared that SBP has introduced refinancing schemes for renewable energy, disbursing Rs94.7 billion by the end of June 2024, financing more than 4,500 renewable energy projects with a cumulative energy generation capacity of almost 2,061MW.

In collaboration with the World Bank, the SBP is developing a comprehensive Green Taxonomy to establish a standardised framework for the classification of green and transitional activities. “This will provide a clear framework for identifying and classifying green and transitional activities, facilitating the flow of capital into sustainable projects,” Ahmad said.

Maheen Rahman, CEO of InfraZamin Pakistan, stated at the event that for Pakistan to fully unlock its potential in green financing, the private sector needs to collaborate with government and regulatory bodies.

“At InfraZamin, our mission is to bridge financing gaps by providing credit enhancement solutions that reduce investment risk and make it feasible for the private sector to support green bond issuance and other sustainable projects.”

“As a nation on the frontlines of climate vulnerability, Pakistan needs more than just incremental changes. Sustainable finance is not merely an option -- it is a responsibility we, as an industry, must embrace,” said Muneer Kamal, CEO and general secretary of the Pakistan Banks’ Association.

Philip Skinner, the head of Middle East and North Africa (MENA) and Pakistan, Guarant Co said that with the right support the private sector can lead the way in the development of the market for certified green, social and sustainability bonds and loans.

GuarantCo and the Private Infrastructure Development Group (PIDG) has supported the first corporate green bond issuances in Bangladesh, Vietnam, Cambodia, Kenya and Zambia and have seen first-hand that the barriers to entry are much lower than perceived, whilst the potential for societal benefits as countries respond to the climate change challenge can be enormous, he added.