KARACHI, Aug 2: With the start of the new fiscal year in July the State Bank has slowed dollar buying from inter-bank market allowing the banks to pre-pay corporate debts on behalf of their clients.

Senior bankers told Dawn several corporates particularly some multinationals pre-paid foreign debt in July as the inter-bank market remained flushed with foreign exchange inflows. They said it was difficult to quantify the corporate pre-payments made last month. But some of them close to the central bank said the inter- bank market saw an overall outflow of not less than $750 million in July.

They said the amount included corporate debt prepayments as well as normal debt payments; transfer of funds by independent power producers; oil payments and payments of military debt etc.

Senior bankers say this $750 million outflow was in addition to the first-ever $1 billion pre-payment of government debt. Finance Minister Shaukat Aziz disclosed last month that Pakistan has started pre-paying foreign debt as part of its strategy to reduce the cost of external debt by retiring the most expensive of them before time. He had said the country had pre-paid $1 billion debt without giving specifics. Details are still not officially available.

Senior bankers say the stability the rupee showed in inter- bank market last month despite a total outflow of $1.75 billion is indicative of the fact that it is still under-valued. Top economic managers have said more than once that the SBP has kept the dollar stable for the benefit of the exporters and let the rupee remain under-valued in the process. Despite all this the rupee appreciated by 3.6 per cent in fiscal July/June 2002/03. Had the State Bank not purchased $4.8 billion from the inter- bank market to keep the dollar stable the rupee appreciation would have been much higher. But unmistakably that would have created a lot of problems not only for the banking sector, but for the economy as a whole: the exports would have been hit hard and the exceptional rupee liquidity left in the market would pushed up inflation. Banks margins would also have been fallen drastically.

Dawn inquiries with a number of banks reveal that the SBP dollar buying fell considerably last month and bankers close to SBP estimate it around $300 million. But no official figures are available. The central bank discloses its dollar buying figures on quarterly basis. The July-September dollar buying would be made public when the quarterly report covering this period is published.

In July the rupee remained stable in the inter-bank market despite a huge $1.75 billion outflow and roughly $300 million foreign exchange buying by SBP. The local currency rather gained six paisa against the US dollar last month to close at Rs57.78 to a US dollar.

This shows that foreign exchange inflows into the system were larger than the outflows. The major sources of forex inflows are exports and home remittances both of which showed a rising trend last fiscal year and bankers say in the first month of this fiscal also inflows through exports and remittances were quite high. But export figures would be out next week and that of remittances in the middle of the month. Pakistan’s exports soared to $11.03 billion last fiscal year up from $9.2 billion in fiscal 2001/02 and home remittances shot up to $4.2 billion up from around $2.4 billion.