March 31, 2006	Friday	Rabi-ul-Awwal 1, 1427

KARACHI, March 30: The country’s foreign exchanges reserves saw an outflow of $1.306 billion till March 25, 2006 from the beginning of the current fiscal year despite higher inflows of foreign direct investment (FDI) and remittances.

The State Bank on Thursday reported that the reserves stood at $11.307 billion on March 25, 2006 as against $12.613 billion on July 5, 2005. The monthly average decline in reserves was about $145 million.

The higher foreign direct investment and improved workers’ remittances did not reflect in the country’s forex reserves. However, the government maintained that it would be able to meet the expected record trade deficit with the help of increased FDI and remittances.

Economists see a trade deficit of about $9 to $10 billion by the end of the current fiscal on June 30, 2006. The government has been saying that the deficit would be met with the expected foreign direct investment of $3 billion and remittances of over $4.2 billion. The FDI during the eight months (July-Feb) 2005-06 reached to $2 billion. The government also expected to fetch up to $1 billion in privatization proceeds especially after the PTCL sell-off deal.

“All these inflows of foreign exchange should be reflected in the country’s reserves but the declines show that the outflow is much higher than the inflows,” said an analyst.

The July-Feb data showed that the imports increased by 46 per cent and exports by 20 per cent over the corresponding period of last year, which is a clear sign of growing trade deficit.

“The burden of oil payments is the key element in the soaring import bill,” said the analyst. However, the higher import of automobiles and rising food bills including palm oil and sugar were also adding the overall import bill. Analysts believe that the import bills on the two accounts could be reduced with better economic management.

The sudden rise in sugar prices compelled the government to allow duty-free import of the commodity to bring local prices down which did not happen. “The rising import bill of sugar will certainly be disturbing for the government at the end of the fiscal,” said Mian Aslam, a sugar dealer.

Currency dealers said that the State Bank had been in market to buy dollars to keep its reserves at a level not less than $9 billion.

In a recent statement the commerce minister had said that the exports would reach $18 billion this year but did not explain how it would be achieved.

“Even if exports increased with more than 20 per cent, we could earn up to $16 billion this year,” said S.S. Iqbal, a banker. However, he said that the outflow of reserves would be reduced in the next three months. He said the foreign companies had been remitting profits to the parent countries since the end of the calendar year 2005, which is now over.