KEY POINTS
- SBP reserves surge fivefold since February 2023 amid improved debt dynamics
- Inflation projected to remain within 5–7% range despite temporary flood impact
- Central bank revises microfinance regulations, launches Climate Risk Fund
ISLAMABAD: The State Bank of Pakistan (SBP) on Thursday said that its timely purchase of US dollars from the interbank market helped the country avert massive foreign borrowing at higher interest rates.
The move also enabled Pakistan to meet its external debt obligations and strengthen its foreign exchange reserves fivefold in just over two years.
Speaking at the ninth Annual Microfinance Conference in Karachi, SBP Governor Jameel Ahmad said the central bank’s strategic forex purchases — amounting to $7.8 billion between June 2024 and May 2025 — had reduced reliance on costly external borrowing and reinforced the country’s debt repayment capacity.
“Had we not built up our reserves from interbank purchases, the government would have needed to borrow significantly higher amounts — at higher interest rates — to make timely debt repayments,” Ahmad stated.
He said Pakistan’s foreign exchange reserves were now “almost five times higher than in February 2023”, reflecting the success of the central bank’s market-based accumulation strategy.
Ahmad credited the improvement to “difficult but necessary policy and regulatory measures” that had restored macroeconomic stability after a prolonged period of volatility.
Macroeconomic outlook improves
The governor said inflation had declined sharply and was expected to remain within the government’s medium-term target range of 5–7 percent, despite temporary upward pressure from recent flood-related disruptions.
“Achieving inclusive economic growth requires durable macroeconomic stability that uplifts communities and secures prosperity for all,” he added.
He noted that SBP’s monetary tightening and prudent regulatory framework, combined with fiscal consolidation by the government, had helped contain demand-side pressures and stabilize external and debt indicators.
“As a result, the country’s debt dynamics have improved considerably, and growth is on track to accelerate further this fiscal year,” Ahmad said.
Focus on microfinance and inclusivity
Reaffirming SBP’s commitment to microfinance as a driver of inclusive growth, the governor announced comprehensive revisions to the Prudential Regulations for Microfinance Banks (MFBs).
These reforms mark a transition from a rules-based to a principle-based regulatory approach, offering greater flexibility and expanded lending limits.
The revisions include:
- Removal of restrictions on microenterprise lending
- Introduction of a dedicated Agriculture and Livestock loan category
- Enhanced loan ceilings up to Rs5 million for agriculture, microenterprise, and housing loans, and Rs500,000 for general loans
“Together, we can ensure that microfinance continues to play its vital role in fostering inclusive, resilient, and sustainable growth,” Ahmad said, assuring the industry of SBP’s continued collaboration to strengthen resilience and customer protection.
Climate resilience and sustainability
Highlighting the impact of climate shocks on low-income communities, Ahmad revealed that the SBP had launched a Climate Risk Fund under the World Bank-funded Resilient and Accessible Microfinance Project.
The initiative aims to support two million borrowers through liquidity facilities designed to mitigate climate-related financial risks.
He said the fund represents a key component of Pakistan’s broader effort to integrate climate resilience into its financial system and promote sustainable economic recovery.
