SBP purchased dollars from the local market worth US $2.81 billion Dollars.

SBP purchased significant dollars from the market.

The State Bank of Pakistan has purchased USD 2.81 billion from the market within four months (June-Sep 2024) to pay back the external debt and maintain foreign reserves. In the past, the State Bank of Pakistan had to spend dollars to control the dollar rate against PKR, which at times was just considered as burning dollars.

In 2018, it was revealed by Asad Umar, ex-finance minister of the PTI government, that the crisis created by PMLN was also due to them burning nearly USD 20 billion in a 5-year term to control the exchange rate of PKR against the dollar at that time and to control inflation.

We explained in our recent articles that it was one of the reasons Pakistan had such a high current account deficit, which led to the massive devaluation of the currency, and Pakistan had to go from a pegged exchange rate to a market-flexible exchange rate. Peg currency exchange was such a disaster for Pakistan that even the PTI government had to spend nearly USD 4.5 billion to manage the exchange rate against the USD; however, it managed to devalue to nearly 15%.

Why is SBP purchasing dollars from the market?

SBP is purchasing dollars from the market mainly to pay back loans and its debts. It is a fact that the government is finding it very difficult to arrange loans, and lenders' conditions are very strict for their loans, and at times their interest rate is double digits for their loans, which Pakistan cannot afford.

There were days when Pakistan used to get unconditional loans from the UAE, KSA, and China; however, those days are gone because Pakistan did not focus on reforms; instead, we relied on those countries to bail us out from our own flaws.

Moreover, due to remittance increases, Pakistan opted to get dollars from the market and pay back the external debts. It has pros and cons. However, the biggest con is that PKR could have appreciated its value against the dollar, and maybe the PKR rate would be 250 against USD. However, SBP's decision was to go with the status quo exchange rate of PKR, buying buy dollars from the market, so the external debt does not increase, and avoid harsh conditions of the lenders.

  SBP's FX Interventions in the Interbank  FX Market.