SBP Projects Significant Rise in Foreign Currency Reserves to $18 Billion by June 2026
The State Bank of Pakistan (SBP) has made an optimistic forecast, anticipating that its foreign currency reserves will climb to $18 billion by the end of June 2026. This substantial increase is expected to provide nearly three months of import cover, bolstering the country's economic stability. The central bank further predicts that reserves will continue to grow in the next fiscal year, reflecting a positive trajectory for Pakistan's external account.
Monetary Policy Report Highlights Improved Macroeconomic Outlook
This forecast was detailed in the SBP's bi-annual Monetary Policy Report, released on Monday. The report is part of the bank's efforts to enhance communication with external stakeholders and bring greater transparency to monetary policy decision-making. It reviews macroeconomic developments and the outlook that have guided the Monetary Policy Committee's decisions since the August 2025 report.
The report noted that macroeconomic conditions and the outlook have improved, supported by a prudent monetary policy stance and continued fiscal consolidation. Key projections include:
- Inflation is expected to remain within the 5-7% target range during most of FY26 and FY27, despite some near-term volatility.
- The current account deficit is forecast to stay contained at 0-1% of GDP in FY26, with a higher trade deficit likely offset by robust workers' remittances and planned official inflows.
Economic Growth Strengthens Amid Stabilisation Efforts
According to the report, economic activity has strengthened due to ongoing macroeconomic stabilisation, eased financial conditions, and the recent reduction in the Cash Reserve Requirement to 5%. As a result, economic growth prospects have improved:
- Real GDP growth is now projected in the range of 3.75-4.75% for FY26.
- Growth is expected to increase further in FY27, indicating a sustained recovery.
Risks and Challenges to the Economic Outlook
The Monetary Policy Report also underscored evolving risks to the macroeconomic outlook. While the risk of widespread impact from recent floods has receded, uncertainties persist:
- Global tariff-related developments and volatility in global commodity prices pose ongoing challenges.
- Domestically, below-target revenue collection and potential adverse climate events remain sources of vulnerability for inflation, the external account, and GDP growth.
In this context, the report emphasized the importance of speeding up progress on structural reforms to increase the economy's resilience to adverse shocks, improve productivity, and address losses in state-owned enterprises.
Innovative Tools and Concepts in Monetary Policy
The report features four box items that discuss key macroeconomic concepts related to monetary policy. These include:
- An update on the monetary policy transmission mechanism, considering the sizable reduction in policy rate from June 2024 onwards and the typical transmission lag of six to eight quarters.
- An explanation of heat maps as an alternative tool for gauging economic activity by consolidating signals from multiple indicators across different sectors into a single visual summary.
Overall, the SBP's report paints a cautiously optimistic picture for Pakistan's economy, with significant gains in forex reserves and growth, tempered by the need for continued reform and vigilance against external and domestic risks.
