Pakistan's foreign exchange reserves increased to $17.2 billion by May 29, putting the country on track to reach its $18 billion target for FY26 by the end of June. According to State Bank of Pakistan data, the reserves grew by $43 million during the week ending May 29, supported by inflows from key allies and IMF-backed reforms. The total reserves, including commercial banks, reached $22.63 billion at May's end. Pakistan's foreign exchange position has been boosted by Saudi Arabia's $3 billion deposit in April, which also extended a $5 billion deposit for three more years. The country had also repaid a $3.45 billion deposit to the United Arab Emirates in April after the UAE declined to extend the arrangement. However, financial analysts warn that the reserve build-up masks deeper vulnerabilities in Pakistan's economy, particularly the sharp deterioration in its trade balance.
Pakistan has secured its first Qatari LNG shipment to transit the Strait of Hormuz since the Middle East conflict began in February, marking a significant breakthrough in energy supply chains. According to shipping data from VesselsValue, the Q-Flex LNG carrier Al Kharaitiyat loaded with Qatari LNG crossed the strait and is sailing in the Gulf of Oman, expected to arrive at Pakistan's Port Qasim on Monday. This represents the first Qatari LNG cargo to transit the Strait of Hormuz since the conflict between Israel, the US, and Iran began on February 28. The 2009-built vessel, owned by Nakilat and chartered by QatarEnergy LNG, loaded the cargo at QatarEnergy's giant LNG complex last month, providing crucial relief to Pakistan's energy-starved power sector. Since May 9, three Qatari tankers have successfully arrived at Port Qasim through an Iranian-approved northern coastal route, leveraging Pakistan's mediation role in US-Iran peace talks.
Pakistan purchased its most expensive liquefied natural gas shipment in approximately four years, as the country faces an energy crisis due to the effective closure of the Strait of Hormuz. According to traders with knowledge of the matter, Pakistan LNG Ltd., the state-owned company, bought a cargo for June 6-7 delivery from BP Plc via a tender that closed on Thursday. The cargo was purchased at $19.1337 per million British thermal units, making it the priciest LNG purchase for the South Asian country since 2022. This represents the latest in a series of emergency purchases as Pakistan struggles to secure adequate fuel supplies. However, the country has cancelled its latest May tender for two prompt cargoes after an earlier tender drew seven bids at $16.98 to $17.28 per million British thermal units that Pakistan declined, reflecting the punishing cost of spot liquefied natural gas.
Despite foreign exchange gains, Pakistan faces mounting challenges from a widening trade deficit that threatens economic stability. According to financial experts, the trade deficit for 11 months of FY26 has soared to $35 billion, which is seen as alarming by economic managers. The import bill increased to $62.66 billion, mainly due to an increase in imports of luxury items and foodgrains. Economists identified the growing trade deficit as one of the biggest threats to Pakistan's economic outlook, warning that it will definitely take the current account deficit to an unexpected level, putting pressure on PKR to depreciate against USD. The country had recorded a current account surplus of $1.8 billion in FY25, but the sharp increase in imports is expected to reverse that trend. Currency dealers are forecasting a drop in remittance inflows, making the FY26 target of $41 billion increasingly unattainable. More than 50% of remittances come from West Asia, making the situation particularly concerning given regional economic pressures.
Despite Pakistan's ability to secure vital energy imports, the country faces significant pressure on its managed exchange rate policy. According to currency expert Atif Ahmed, the managed exchange rate may burst after June, after large payments are made before the end of the fiscal year on June 30. He noted that while the US dollar has strengthened against most regional currencies, Pakistan's rupee continues to face depreciation pressure, with the SBP's purchases of dollars from the inter-bank market having limited influence on pricing because the rate is determined by the central bank. Economic managers could face a difficult FY27 if the trade deficit remains elevated and the current account moves back into deficit. The country's total foreign exchange reserves stood at $22.63 billion at the end of May, including $5.44 billion held by commercial banks.
