KARACHI, Nov 10: The State Bank of Pakistan’s competence and capacity to regulate and monitor foreign exchange companies have again come into sharp focus following allegations against many of these companies acting as conduits of capital flights from Pakistan and a panic clampdown on Friday, last week, on one of the top companies.

“Sorry, I cannot give you this information,” the official spokesman of SBP replied on Monday when asked to comment on the capacity of the central bank to regulate and monitor some two dozen ‘A’ category and 32 ‘B’ category exchange companies in Pakistan.

The information sought from the SBP was the level at which the foreign exchange companies are being regulated and monitored in the SBP and the number of people involved in the job in Karachi, Lahore and other places. The other question was how many statements are being received on daily, weekly, monthly, quarterly and annual basis by the State Bank from these companies. A pointblank refusal by the State Bank to give such elementary information raises many doubts on its competence.

The main purpose of seeking this information was to understand the SBP’s capacity, both in terms of workforce and skill, in relation with the workload. And also why and how the fault lines in money exchange business could not be detected well in time as now media reports suggest flight of $10 billion to $30 billion from Pakistan in the last six or seven months.

It was in 2002 that the State Bank of Pakistan started giving permissions to foreign exchange companies. In the year 2004 many money changers in informal sector were given the opportunity to take permission and operate as formal foreign exchange companies.

The A category foreign exchange company is allowed to export 75 per cent of its capital-base in currencies abroad to purchase dollars and other currencies in demand. The B category company is not allowed this facility. The B category company is also not allowed to retain foreign currencies with it overnight. It is under the law bound to give all foreign currencies to A category company or a scheduled bank.

All companies A and B are bound to maintain an account of all transactions. These companies have to keep State Bank informed of their transactions where financial analysts are expected to monitor regularly and if they detect any fault line in these transactions, the central bank can appoint auditors.

Since October 2007, more than $10 billion have been flown away from Pakistan’s foreign exchange reserves and the market players estimate twice of this amount, $20 billion, have not been brought to Pakistan at all. Where has the money gone?

For last several months media in Pakistan carried big advertisements of construction projects in Dubai and other places. There was an exhibition in Karachi of construction projects where orders are said to have been booked from Pakistani investors.

Did the SBP ever examine what channel was being used to shift capital from Pakistan to Dubai for investment in all these projects? Now that the Dubai bubble is almost burst as construction business in tiny island kingdom and in its neighbourhood has started showing signs of downturn, the market in Karachi is abuzz with rumours of a large number of Pakistani businessmen having suffered huge losses.

An SMS message informed that a large number of businessmen with Karachi and Lahore origin went bankrupt on failure of construction projects in Ajman near Dubai. According to a reputed builder, more than three dozen Pakistani businessmen have suffered on investment in a villas construction project in Dubai.

The investors were offered a villa at 3.2 million dirhams (about Rs7 million). The investors deposited 20 per cent as down payment for booking. The market value of a villa is now 2.7 million dirhams and because of liquidity crunch quite many Pakistani investors fear their cheques for remaining 80 per cent of amount will not be honoured.Under and over-invoicing of import-export bills, commissions and cuts in foreign purchases of the government, including defense contracts and import of machinery and equipment against tied loans and even grants, are all transactions, which were used and are still practice by Pakistani business, bureaucrats in uniform and without, professionals and, of course, the politicians for depriving their motherland of its resources in billions of dollars.

While the FIA and other agencies will investigate and media will build up hype on involvement of politicians and bureaucrats in flight of capital from Pakistan, there is no denying the fact that the State Bank owes an explanation to 160 million people of Pakistan.

Those, who were involved in flight of capital, were accorded an opportunity, by late Ayub Khan in 1959, Zulfikar Ali Bhutto in 1972, Ziaul Haq and Dr Mahbubul Haq in 1983 and the latest one provided in the current budget, which offers a clean slate to the holders of black money by paying just 2 per cent of their black money.

Whether it is because of flight of capital or growing imbalance in external sector because of legitimate trade and transactions, the fact is that Pakistan’s foreign exchange reserves have come down to alarmingly low levels in last six or seven months and rupee parity with dollar has been hit hard.

In May, the SBP in an apparent knee-jerk reaction, banned export of euros, pounds and dirhams after rupee parity with dollar came down to Rs70. The decision came only after State Bank found only Rs2 difference between inter bank and kerb rates.

The SBP moved in only after $400 million were reported to have been lost from the foreign exchange reserves. SBP Governor Dr Shamshad attributed this to speculators indicating that the dollarisation process has set in.