Three news items this week past should be a source of serious concern to the country’s stakeholders: SBP’s decision to purchase USD 8 billion from the open market to shore up reserves, the delay in utilising the secured 1.275 trillion rupee loans from commercial banks to retire the energy sector circular debt and the rising sugar prices.

A report released by Arif Habib Limited on 29 July 2025 revealed that the State Bank of Pakistan (SBP) had intervened in the open market to procure USD 7.2 billion – USD 885 million to strengthen foreign exchange reserves with the remaining amount used to service debt and/or to retire the principal as and when due.

The rupee’s external exchange rate is determined within the parameters of three major objectives. First, the difference between the interbank and the open market rate must not go beyond plus/minus 1.25 for five consecutive days as per the International Monetary Fund (IMF) condition — no doubt put in place after the flawed policy effective from October 2022 to nearly June 2023 to artificially control the interbank rate that led to multiple exchange rates resulting in the loss of USD 4 billion in remittance inflows through official channels. The country’s reserves as a consequence of this flawed policy plummeted to under USD 3 billion.

Second, any loss of the rupee value against the dollar raises the country’s mark-up payments that constitute 50 percent of total current expenditure and 46 percent of total expenditure in the 2025-26 budget that, in turn, would raise the budget deficit with severe inflationary implications.

It is relevant to note that the dollar performed poorly in the ongoing calendar year due to the prevailing geopolitical crises and threat (and the subsequent levy) of punitive tariffs on several countries including Pakistan (a........

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