SBP Targets $25 Billion in Foreign Reserves by June 2027 as External Debt Structure Improves

Pakistan’s total external debt currently stands at approximately $107 billion, increasing by only $5 billion to $6 billion over the past four years, according to the State Bank of Pakistan (SBP) governor.

Speaking at a press conference following the monetary policy announcement, the governor said the country’s external debt had exceeded $100 billion in 2022. He explained that the increase over the last four years represented an average annual addition of around $1 billion to $1.25 billion.

In comparison, Pakistan’s external debt had increased by an average of $6.5 billion annually between 2015 and 2022, highlighting a slower pace of external borrowing in recent years.

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The governor also explained that the SBP had used dollars purchased from the foreign exchange market to meet a significant portion of the country’s external interest payment obligations. Around $10 billion to $11 billion in interest payments were covered through these purchases rather than additional foreign borrowing. During this period, the central bank purchased more than $30 billion from the foreign exchange market.

These foreign currency purchases also contributed to strengthening Pakistan’s foreign exchange reserves, which increased from approximately $3 billion in early 2023 to around $21.5 billion.

The SBP governor further highlighted improvements in the composition of Pakistan’s external debt. Nearly 80 percent of the country’s external debt is now owed to multilateral and bilateral lenders, including the World Bank and the Asian Development Bank. This share stood at approximately 55 percent in early 2023.

He expressed optimism that Pakistan’s annual interest payments on foreign loans could decline to below $3 billion next year, easing some pressure on the country’s external financing requirements.

Meanwhile, the central bank has established ambitious targets for further strengthening foreign exchange reserves. According to the governor, the SBP aims to increase reserves to $23 billion by December 2026 and reach $25 billion by June 2027.

The remarks came after the State Bank raised its benchmark policy interest rate by 0.5 percentage points, bringing it to 12 percent. The decision reflects the central bank’s latest monetary policy stance amid ongoing economic and financial challenges.