Pakistan builds record reserves amid Gulf war

In the wake of the Gulf war, Pakistan's foreign exchange reserves reached a record high of over $26.8 billion, according to the State Bank of Pakistan (SBP). The war, which began on February 28, caused concern for many economies, including Pakistan's, but the SBP has since managed to bolster its reserves by more than $5 billion. The reserves had been $16.568 billion in February and climbed to $21.568 billion by October 30.

The SBP's reserves saw a rise of $39 million during the week, with the financial sector confident that the current reserves would maintain a stable exchange rate. This stability encourages exporters to send their proceeds back to the country without delay, providing assurance to importers and a sense of confidence in the market.

However, currency experts argue that the Pakistani rupee is overvalued, leading to an increased demand for dollars that lowers their cost for importers. As a result, the country's trade deficit widened to $14.6 billion between July and October of the fiscal year 2027. Imports totaled $26 billion, while exports were only $11.4 billion.

The trade deficit is believed to be exacerbated by the exchange rate being kept stable at the expense of remittances, which have been growing each year. The government and the SBP have not devised an effective policy to better utilize remittances; instead, they are employed to bridge the trade gap.

During the week, commercial bank reserves also increased by $70 million, showing that outflows from Pakistan were less than inflows into the banks. The SBP reported that the total reserves of the country reached a record high of $26.864 billion, up from $26.754 billion the previous week—an increase of $110 million.