KARACHI, Aug 25: Despite shifting of 30 per cent load of oil import payment to the private sector, the reserves of both the commercial banks and State Bank increased significantly.
The SBP had decided to shift up to 30 per cent oil import burden on the private sector, which became effective from July 13, 2007.
The decision may cause an impact of about $2.3 billion, which the private sector would have to pay as oil bills. The SBP has been paying oil bills for last three years in an attempt to protect the rupee from speculative shocks of the exchange rates.
The important decision could cause an impact in the exchange market but the flow of foreign exchange into the country supported the State Bank’s move regarding the oil import bills.Now the private sector has to arrange dollars to import the 30 per cent oil but the import figures showed that the situation was supportive of the SBP move.
On July 13, 2007 the country’s total foreign exchange reserves were $15.645 billion, which increased to $15.801 billion on 18th of this month, an increase of $156 million.
The commercial banks’ reserves also increased instead of decline as the commercial banks were now the market for the importers to buy dollars for oil payment. During the period from July 13 to August 18, the commercial banks’ reserves increased by $57 million to $2.314 billion. The SBP also improved its reserves by $98 million to $13.486 billion.
The market experts said that the shifting of oil bills to private sector did not impact the exchange rate.
“Neither there is any shortage of dollar nor speculative forces could exploit this situation,” said Asif Ahmed, a currency dealer. He said the high inflows of foreign exchange kept the pressure on dollars not on rupee. Dollar did not gain since the implementation of the SBP’s decision, he said.
“The SBP’s decision carries an impact of $2.3 billion which is substantially high amount but the massive inflows through foreign direct investment and remittances of overseas Pakistanis neutralised the impact,” said another currency dealer.
He also claimed that the SBP had been paying the oil import bills by purchasing dollars from the open market. “The decision was not to impact the exchange rate or create additional dollar demand as the SBP is used to purchase dollars from the open market and the practice still continues,” he said.
The SBP is still to pay 70 per cent oil import bills. Pakistan had paid about $7.7 billion for oil import during the year 2006-07. This huge bill was the real cause for widening trade deficit of the country.
The July data shows that both the remittances by the overseas Pakistani workers and foreign direct investment increased by over 13 per cent which would help the country to meet its current account deficit.
The State Bank has planned to shift the entire oil import bill to the private sector but it did not provide any time frame for this complete shifting. However, banking sources said that this was the right time for SBP to get rid of the oil import bills. They said that the entire shifting should be taken within one year.
