ISLAMABAD, Aug 17: The government has assured the International Monetary Fund (IMF) that the State Bank of Pakistan will no more be buying dollars from the open market to increase country’s foreign exchange reserves.

Official sources told Dawn that the issue of buying dollars from the kerb market by the central bank was extensively discussed by the visiting five-member IMF review mission with the senior officials of the ministry of finance and the State Bank.

It also came up for discussion when review mission chief Klaus Enders met Finance Minister Shaukat Aziz and State Bank Governor Ishrat Hussain last week. Enders appreciated the decision of the government not to buy dollars from the open market, specially when the reserves had reached to little over $7.2 billion dollar.

Sources said the review mission was informed that the process of converting money changers into exchange companies was being quickly completed to regulate the foreign exchange business in Pakistan. “Eventually a number of proposed exchange companies will merge into six or seven bigger companies,” a source said, adding that some of the banks were also interested to establish their own exchange companies.

“And once the new arrangement will be fully in place, the central bank will automatically start receiving $900 million to $1 billion annually from the exchange companies,” he said.

After setting up of the exchange companies, sources said, all transactions would be legalised to be effectively regulated and monitored by the SBP.

The central bank is believed to have purchased roughly $4 billion from the open market since Sept 11 last when the dollar had rapidly started depreciating viz-a-viz other foreign currencies. But some believed that the central bank was still making purchases from the market and that it was yet not known as to when the bank would totally stop making such purchases.

The IMF review mission, sources said, was also told that the revised draft of the Fiscal Responsibility Law (FRL) was now ready and was being sent to the federal cabinet for final approval. The necessary consultation process to get the FRL formulated has been completed with all the stakeholders.

The FRL places a limit on the level of government borrowing for financing its expenditure. It proposes to make borrowing only for the purpose of development expenditure and meet its current expenditures from revenue receipts.

The government is said to have assured the review mission that there will be no more borrowing for consumption and if at all it was to be borrowed, it will be for investment purposes.

“Therefore no deficit will be allowed in the current account,” a source said, adding that some specified period has been proposed to the government to comply with this requirement.

The officials of the ministry of finance said the fiscal responsibility law had been a significant missing element in the fiscal management.