Depleting reserves

Despite the liberal incentives given to export industries in the form preferential tariff of energy inputs, subsidy and duty drawbacks to exporters, exports are not gaining the desired momentum. Consequently, foreign currency reserves are depleting though friendly counties have given billions of dollars in bilateral assistance and oil import on deferred payment. The foreign exchange reserves held by the central bank shrank by 2.28 per cent on weekly basis and amounts to $7.29 billion, according to the data released by the State Bank of Pakistan (SBP).

The falling reserves raise concern about Pakistan’s ability to meet its financing requirements. Earlier, Saudi Arabia provided financial assistance which pushed the reserves above the $8 billion mark, however, later started falling again. Moreover, the third $ 1 billion loan tranche from the kingdom is expected to arrive this month. Separately, China has agreed to provide much-needed support for the fast depleting reserves. On 28 December, foreign currency reserves held by the SBP were recorded at $ 7,287 million down by $170 million compared with $7,457 million in the previous week. The decrease was attributed to debt servicing and other official liabilities. Overall liquid foreign currency reserves held by the country, including net reserves held by banks other than SBP stood at $ 13,837.8 million. Net reserves held by banks amounted to $ 6,550.3 million.

The reserves have been on the downward trajectory over the past two years. When it dipped to $ 9.6 billion, the central bank let the currency depreciate massively for the fourth time since December. 2017, sparking concerns about the country ability to finance hefty import bill as well as meet the debt obligations in the coming months.

The currency dealers have claimed to have brought $13 billion in the country in the past eight years, including $1 billion since August 2018 to stabalise the foreign currency position. “Dealers contribute $200 t0 $ 300 million a month to foreign reserves through commercial banks,” said Pakistan Forex association President Malik Bostan, while briefing finance minister Asad Umar. He told that currency dealers have the potential to bring up to $ 1 billion a month. A delegation of currency dealers headed by Malik Bostan asked the minister that the government should offer Rs.2 per dollar in rebate to attract higher remittances from overseas Pakistanis. The incentive would help currency dealers to realise their true potential and contribute maximum dollars to country’s foreign currency reserves. “The government is paying Rs.6 per dollar to commercial banks for the job of attracting remittances,” said Bostan.

It is also a bitter fact that the banking system remained involved in the flight of dollars from the country through money laundering and the SBP failed to perform its monitoring and regulatory role. The FIA probe in fake bank accounts, hefty fine on Habib Bank New York Branch and its subsequent closure on the charges of money laundering are the glaring examples.

Pakistan receives $20 billion worth remittances in a year. The receipts have remained a big source of stabilizing foreign currency reserves and helped finance imports and debt repayments. About 10.1 million Pakistani overseas works send home remittances. The government has allowed the currency dealers to establish business ties with more foreign banks and global money transfer companies in order to attract higher remittances.

These are temporary measures to stem the slide of foreign reserves. The permanent solution lies in boosting exports and establishing industries of import substitution and raw industrial material and intermediate goods manufacturing. The country has great potential of exporting the primary commodities like sugar, wheat flour, rice, and different types of fresh and dry fruits by exploring new markets. For this purpose, the commercial councilors posted in Pakistani embassies needs to be instructed to explore markets in the countries of their posting instead of sitting idle, enjoying perks and privileges and waiting for the completion of their tenures.

Federal minister for national food security Sahizasa Mahboob Sulatan has disclosed that Pakistan fruits exporters can target two new international markets—China and the Philippines—for citrus fruit shipments. In fact the delicious fruits like guava, mango, pear, peach, apricot and apple can also be exported to foreign markets after proper grading and packing. Likewise dry fruits can also be exported. Gem and jewelry and marble products are other noteworthy export items. A long term trade policy envisaging proper focus on new markets will be instrumental in bring reasonable amount of foreign exchange in the country.