SBP projects Pakistan FX reserves to hit $21.1bn by end of FY27

The State Bank of Pakistan (SBP) anticipates that Pakistan's foreign exchange reserves will reach a new peak of $21.1 billion by the end of the current fiscal year FY27. However, the bank warns of several potential risks that could hinder this optimistic projection. These risks include volatile global commodity prices, geopolitical tensions, delays in implementing structural reforms, challenges for exports due to global tariff uncertainty, and climate-related risks stemming from El Niño conditions.

The bank expects inflows of workers' remittances and exports of goods and services to boost the reserves. The economic growth for FY27 is projected to range between 3.5-4.5%, compared to the provisional growth of 3.7% in FY26. The central bank notes that the growth forecast for the previous year will likely increase to approximately 4% once finalized.

The Monetary Policy Committee (MPC) has revised Pakistan's macroeconomic outlook for FY27 in a more positive direction, considering factors like lower-than-expected inflation, gradual recovery of economic activity, and moderate external account pressures. However, the bank cautions that the outlook is contingent on various risks, such as the duration and intensity of the Middle East conflict, adverse climate events, global tariff policies, and delays in implementing structural reforms.

The bank's cautious monetary policy tightening is aiding in containing the second-round effects of the energy price shock while keeping inflation expectations of stakeholders relatively stable. The government has also implemented timely price increases, targeted subsidies, and austerity measures to maintain fiscal discipline and moderate aggregate demand.

Despite these efforts, the global shock coupled with policy responses has weakened the growth momentum that was rising before the Middle East conflict.