KARACHI, Aug 6: State Bank Governor Dr Ishrat Husain on Friday told the Senate standing committee on finance that the central bank has transferred $2.8 billion to external fund managers for investment abroad.

Dr Husain told the committee members at a meeting held here at the SBP headquarters that the State Bank had earmarked $3.2 billion for investment abroad of which $2.8 billion had been given to the fund managers. They would invest the amount in both government and non-government bonds and treasuries in the world market on behalf of the State Bank.

Senator Ahmad Ali, who heads the Senate committee on finance, revenue, economic affairs and statistics, presided over the meeting. Other members of the committee included senators Asif Jatoi, Mohammad Akram, Prof Khurshid Ahmad, Ishaq Dar and Safdar Ali Abbasi.

The SBP chief told the committee that the purpose for placing foreign exchange reserves in global investment market was to ensure safety and maximum return on the reserves, said a press release.

Dr Husain informed the committee that the central bank had pursued an accommodating monetary policy to provide a kick-start to the economy. "It has transformed the banking system on sound footings by ensuring stronger capital adequacy, improved corporate governance and better risk management," he added.

The SBP governor informed the committee of the future challenges facing the bank and the need to maintain a stable exchange rate that provides adequate incentives to exporters, but at the same time keeps price level under control; to further broaden the access of banking loans to a large segment of population particularly among the middle, lower middle and poor classes; to attain 50 percent coverage of farming households inthe country by institutional credit in the next 5 years; to increase the access of small and medium enterprises to bank credit and non-bank finance; to raise minimum capital requirement and encourage mergers and consolidations among the banks to weed out weak institutions; make banking services and products within the reach of the middle class and expand the base from 2 million to at least 5 million borrowers in the next five years.

Briefing the committee on country's economy, Dr Husain said the focus has shifted from macroeconomic stability to a steady acceleration in the GDP growth in recent years. In fact, the six per cent FY04 growth was the strongest since FY96, he noted.

He said the fiscal deficit had been reduced from 3.7 per cent of the GDP in FY03 to 3.3 per cent of the GDP in FY04. He said the overall balance of payment is in surplus since FY01 largely due to the robust current account surpluses and relatively lower capital account deficits, helping reserve accumulation and maintain exchange rate stability.

However, the lower surplus in FY04 is largely due to high growth in imports, higher prices of imported oil, termination of Saudi oil facility and lower external flows. The SBP governor said the workers' remittances which rose sharply in FY03 to $4.2 billion, moderated in FY04 to $3.8 billion mainly due to the absence of reverse capital flight.

Dr Husain informed the committee that Pakistan made cash payments of $19.8 billion in foreign exchange on account of external debt payments during the last four years despite the long-term rescheduling of bilateral debt by the Paris Club.

The SBP chief informed the committee that the central bank had not incurred a loss of Rs25 billion due to purchases of foreign exchange through open market. The fact is that in FY03, the SBP did not purchase any foreign exchange through the open market and did not pay any difference over the inter-bank market rate, he said and added that the reduction in the profits of the State Bank in FY03 was a reflection of the revaluation of the SBP's foreign exchange assets and liabilities required under the international accounting standards which were adopted in the year 2001.