ISLAMABAD, Oct 28: The federal government is worried about the continuous depletion in foreign exchange reserves and is looking at ways to closely coordinate with the central bank to reverse the situation, it is learnt.
Informed sources told Dawn on Thursday said flight of capital, inter-bank market operations and reserves management were some of the areas policymakers were reviewing at present, as total reserves dropped by about $1.5 billion over a period of one year from about $13 billion to $11.6 billion at present. If swap deals are deducted, the overall reserves would be well below $11 billion, the sources say.
This is happening despite earthquake-related foreign aid flows that on the other hand is appreciating Pakistani rupee value in the open market. The sources said an additional amount of $150 million made its way into the open market over the last two weeks as many donors required fuel and other needs locally.
Interestingly, the government has stopped releasing information relating to the amount of donations being received in the President’s earthquake relief fund and its utilization since October 12 when it had collected about Rs610 million. The president and the prime minister had announced to keep this fund transparent through regular updates to the media.
They sources said about $3.2 billion the State Bank of Pakistan placed with international banks about two years ago for higher returns were yielding less than two per cent. On the other hand, Pakistan was currently paying about 6.75 per cent return on over a billion dollar Euro and Sukuk bonds, while IMF programmes that normally carry less than one per cent interest rate have been turned down.
This alone is causing a considerable dent to forex reserves, much higher than about $300-400 million additional annual oil bill owing to comparatively higher rates of petroleum in the Arab Gulf region.
These sources said the expenditure on aviation fuel in the public sector was rising owing to earthquake operations but most of the fuel used by foreign friendly countries and non-governmental organizations would become part of their relief commitments and were duly paid for.
The aviation fuel consumption had increased from about 3,500 tons per day to about 4,500 tons in the first two weeks of the earthquake but has reduced by about 35-40 per cent now. The supplies, however, remained normal because of higher production at Multan compared with Rawalpindi refineries.
Secondly, there has been a continuous flight of capital to the Middle East where a large number of Pakistanis were investing in real estate business. About $10 million go out of Karachi alone every day illegally without any check.
The sources said as a result of rising trade deficit, exporters were holding back their foreign exchange, while importers had the facility to get dollars at lower exchange rates and hence there was little coming into the inter-bank market at present.
Similarly, they said, rates in the money market had shot up to six per cent, which could create an additional debt of about Rs60 billion by the end of the year, as the country’s total debt and liabilities stood at over Rs1 trillion.
The central bank had placed $3.2 billion with about 10 international banks in 2003 because of limited expertise at home to get higher yields and maintain reserves well over the $12 billion mark, but the high-cost officials hired for coordination with these banks lacked relevant exposure.
The sources said the difference between the return on these placements and LIBOR had now gone up by more than two per cent alone. The average return on $3.2 billion is less than two per cent while the LIBOR is more than four per cent at present, the sources added.
When asked about options the government and the SBP had in mind to reverse the situation, these sources said it would not be prudent to disclose unless finally approved otherwise forex companies and other forces could take positions well in advance.