KARACHI, April 21: Foreign currency deposits of all the banks operating in Pakistan have grown by about 12 per cent in nine months of this fiscal year as hopes for rupee strength start fading.
The stock of fresh foreign currency deposits grew from $2.296 billion at the end of June 2003 to $2.565 billion at the end of March 2004 showing a buildup of $269 million within nine months.
Fresh foreign currency deposits are the deposits mobilized afresh after the freezing of $11 billion FCY deposits in the wake of May 28, 1998 nuclear explosion in response to those of India.
Bankers say that the 12 per cent growth in FCY deposits in nine months to March 2004 is not very huge in nominal terms but it is much higher than the growth seen in the last fiscal year. The rupee gained 34 paisa or 0.6 per cent value against the US dollar in nine months to March 2004 rising to 57.47 per dollar from 57.81.
In the last fiscal year (July/June 2002/03) the local currency had gained 3.7 per cent value against the dollar primarily due to a record inflow of $4.2 billion through remittances from overseas Pakistanis. Small wonder then that the fresh foreign currency deposits had shown a nominal growth of $62 million or less than three per cent during that period.
A 12 per cent growth in fresh foreign currency deposits in nine months of this fiscal year against only three per cent recorded during the whole of last fiscal year coincides with declining balance of payments surplus. That makes the overall picture look more grim.
The balance of payments surplus nose-dived to only $119 million in seven months to January 2004 from a huge $3.174 billion in a year-ago period. Policy makers may justify this by saying that during this period Pakistan retired before time $1.17 billion expensive debt of the Asian Development Bank.
But even if the impact of this prepayment is offset the surplus in BoP would still be at $1.289 billion - far less than the last year surplus of $3.174 billion. Even this figure would become leaner if the $182 million worth of Habib Bank privatization proceeds is excluded from it.
Such a subtraction would not be illogical because like the prepayment of external debt, inflow of privatization proceed of HBL was also a one-time business. So it is against this backdrop that a 12 per cent growth in FCY in three quarters of this fiscal year is being seen as a sign of fading expectations of further fall in the dollar value.
What else makes this growth looks alarming is the fact that the stocks of FCY deposits at end-March 2004 does not include privatization proceeds of Habib bank Limited which were converted into rupees by that time. Had this been the case actual growth in FCY deposits would not have been very high.
That the expectations for further fall in the dollar value are fading is also evident from the very movement in the exchange rates. Not only the rupee has gained much little against the US dollar so far during this fiscal year, it has come under severe pressure at times of large outward payments by the government or the private sector.
