Pakistan's foreign exchange (forex) reserves have substantially recovered, climbing from a low of $9.16 billion in June 2023 to $19.27 billion by June 2025. While this increase has brought a sense of calm, the economy is still wrestling with massive external liabilities and structural weaknesses that keep its stability fragile.
The $25.9 Billion Debt Hurdle
The need for forex liquidity is immense, primarily driven by external debt servicing and imports. State Bank Governor Jameel Ahmed confirmed that $25.9 billion is required for external debt servicing this fiscal year (FY26).
This towering debt need coincides with a large trade deficit. In the first quarter of FY26, the gap between imports ($18.57 billion) and exports ($10.1 billion) stood at $8.46 billion. Extrapolating this trend suggests a challenging annual trade deficit of around $35 billion, putting significant pressure on the reserves and the stability of the rupee.
Immediate relief hinges on securing planned $16 billion rollovers from friendly countries (like China and Saudi Arabia) and continued adherence to the IMF program.
Fragile Stability and Underlying Weakness
Recent developments have anchored short-term confidence: an expected $1.2 billion IMF tranche and the timely repayment of a $500 million Eurobond in September 2025. The rupee reflects this temporary stability, having gained nearly 1% between June and October 2025.
However, the calm is deceptive. The current account deficit (CAD) widened to $594 million in the first quarter of FY26. More critically, exports are stagnant, falling by 3.88% in the same period. This export slump is blamed not only on weak global demand but also on disruptions from border conflicts that hamper overland trade. This shows Pakistan's external stability is managed by inflows, not secured by self-sufficiency.
The Shift from Crisis Management to Reform
Pakistan has passed the immediate crisis, but the current stability relies too heavily on one-off inflows (IMF, bilateral deposits) rather than intrinsic economic strength. The economy is highly vulnerable to:
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Debt Maturation: A high average annual debt repayment of $22 billion (projected over five years).
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External Shocks: Reliance on imported energy/food and exposure to climate disasters (like the 2025 floods causing $2.9 billion in losses).
To achieve lasting stability, Pakistan must shift to structural reform:
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Debt Strategy: Smooth out maturities by seeking longer-tenor financing and diversifying funding through instruments like green and diaspora bonds.
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Import Reduction: Implement energy sector reforms to limit import dependence and address circular debt.
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Boost Exports and Remittances: Improve logistics, facilitate trade, and engage the diaspora more effectively to secure crucial foreign currency inflows.
The increased reserves are a positive starting point, but they are only a base camp, not the summit of long-term economic security.
