Capital outflow threatens reserves: UAE real estate
By Khaleeq Kiani
ISLAMABAD, Sept 13: The flight of capital to lucrative real estate investment opportunities in the United Arab Emirates (UAE) in the recent months has emerged as a real threat to Pakistan's over $12 billion foreign exchange reserves, Dawn has learnt.
Informed sources said a large number of Pakistanis are currently exporting huge foreign exchange through unofficial channels to the UAE's residential schemes offered by a number of companies with family visas and guaranteed profits and buy-back commitments. The schemes are also advertised by Dubai-based satellite TV channels in Pakistan.
About $10-15 million is being exported every day from Karachi airport alone in connivance with customs and other law enforcement agencies, says a senior official adding the flow of capital was also taking place from Lahore, Islamabad, Quetta and Peshawar. "The forex exporters can even use special boats to ship the currency abroad if a crackdown is launched at airports", said the official.
The sources said the regularization of moneychangers' business through their conversion into foreign exchange companies for documentation of foreign exchange business has not delivered the desired results which is evident from the massive outflow of capital.
Informed sources said the State Bank Governor Dr Ishrat Husain has recently taken up the matter with his counterpart in the UAE to help identify Pakistanis who are involved in this illegal business causing irreparable loss to the Pakistan's economy.
However, the authorities will have to take steps at their own because the UAE government itself was attracting foreign investment through permanent family visas, the sources said.
The official said over $900 million went out of Pakistan in first eight working days of the current month to the UAE's real estate business. This, he said, was one of the major reasons for depreciation of the rupee and increase in the official and open market exchange rate in the recent weeks.
The rupee that stood at Rs57.50 to a dollar during July-March 2003-04 has now declined to Rs58.90 in the official and Rs59.50 in the open market. Decline in supply of foreign currency against rupee depreciates local currency which also impacts interest rates and inflation.
These sources said the authorities have also informed the International Monetary Fund (IMF) in the recent weeks besides the US about the fact that while Pakistan has channelized all its remittances to the official means, it has become a victim of a next door black-cum-free market business where the IMF and the US have turned a blind eye.
Already, these sources said, the SBP has faced losses owing to purchase of around $1-1.5 billion worth of Iraqi currency by Pakistanis. According to an estimate, about 200,000 families purchased on an average $5,000 worth of Iraqi dinars.
The depreciation of local currency increases external debt burden and results in increased cost of imported raw material and consumer items causing inflation besides reducing per capita income.
