SBP bought $24b to build reserves

State Bank of Pakistan (SBP) Governor Jameel Ahmad disclosed on Wednesday that the central bank purchased $24 billion from the local market over the past three years to build foreign exchange reserves and that the International Monetary Fund (IMF) has been informed about the monthly rollover of $2 billion debt by the United Arab Emirates.

The disclosures underscore the vulnerabilities of Pakistan's external sector, which is surviving on market purchases while keeping the rupee under pressure and on the goodwill of the UAE that has now moved to monthly rollovers from the six-year-old practice of annual rollovers. During the past three years, the central bank has purchased $24 billion from the market, the SBP governor said while briefing the Senate Standing Committee on Finance. Senator Saleem Mandviwalla of the Pakistan People's Party (PPP) chaired the committee meeting.

The standing committee also deferred the approval of a private member's bill of the PPP that sought disclosure of money spent by companies on social welfare.

The massive market purchases have also weakened the rupee, which otherwise would have been stronger due to the availability of the $24 billion in the market. The heavy reliance on market purchases also shows the failure of the IMF programme that has not helped attract sufficient non-debt creating inflows to build foreign exchange reserves. The governor further said that foreign exchange reserves would reach $18 billion by June this year and exceed $20 billion by December, admitting that the reserves would be increased through market purchases.

The central bank has $16 billion in reserves, including $12.5 billion in cash deposits by Saudi Arabia, the UAE and China. The UAE until recently was rolling over its $3.5 billion debt on an annual basis, a practice that ended in January this year when $2 billion matured.

"The UAE is rolling over debt on a monthly basis instead of annually," Ahmad finally conceded after the central bank remained quiet for almost two months. He further said that the IMF has been informed that the UAE was rolling over debt on a monthly basis. Responding to a question about the IMF's reaction, the governor said the IMF's requirement was that the three countries should retain their cash deposits until the expiry of the programme in September 2027, irrespective of whether the rollover was monthly or annual.

The governor also spoke about the impact of increasing crude oil prices on the external sector. He said the current account deficit could remain up to 1% of GDP in this fiscal year but if prices hit $100 per barrel, it could put pressure on the external account. According to the government's assessment, a $100 per barrel price could increase Pakistan's monthly oil import bill by $280 million to $300 million. This would have an additional impact of $1.2 billion for the remainder of this fiscal year.

Ahmad said foreign remittances for the current financial year are estimated at $42 billion. The volume remained at approximately $3.3 billion in February.

Legislative agenda

The standing committee also took up the PPP's private member bill, the Corporate Social Responsibility Bill, 2026, which was initially moved by MNA Nafisa Shah in the National Assembly. The National Assembly had already passed the bill, which required disclosure of funds spent by companies on social welfare.

Shah's bill was then introduced in the Senate by Senator Sherry Rehman. However, Senator Mandviwalla said that since Senator Rehman was not present, the committee should defer the bill's approval. Shah had proposed a 1% additional levy on companies to raise funds for social welfare. However, Minister of State for Finance Bilal Kayani had objected in the National Assembly and subsequently Shah agreed to withdraw the proposal of a mandatory 1% tax.

There appeared to be confusion within the PPP ranks. After Shah's bill, MNA Shazia Marri also introduced another bill seeking to impose a 2% levy on companies for corporate social responsibility activities. Kayani on Wednesday reminded the committee that the government had opposed these bills from the beginning as they would have resulted in imposing more taxes on companies. He said it was the PPP's decision to proceed with these bills.

However, the minister of state said that Shah had agreed to dilute the bill after reaching an understanding with the government, converting the mandatory fee into only disclosure of the money spent on social welfare. Kayani said that a separate bill has now been introduced that seeks to impose a mandatory 2% tax on companies by Marri.

PPP sources said the movers of the private bill backed out after President Asif Ali Zardari expressed displeasure over introducing legislation that could have increased costs for companies. Following the president's reservations, it was unlikely that MNA Shazia Marri's bill would see the light of day, they added.