Paucity of foreign reserves: Rupee down 27 paisa against dollar

The country urgently needs dollar inflow, as the State Bank of Pakistan foreign exchange reserves hit another low of $5.576 billion during the week ended on Dec 30, 2022.

However, Pakistan total foreign exchange reserves during the week stood at $11.4 billion, including $5.8 billion of commercial banks.

During the week, the State Bank of Pakistan (SBP) foreign exchange reserves saw an outflow of $245 million for external debt repayments.

Earlier, the State Bank of Pakistan said the amount currently stood at $5.82 billion as of Dec 23, which the lowest level in eight years after a reduction $294 million during the week.

Pakistan would have to repay approximately $8.3 billion in external debt over the Jan-March period. Out of this amount, Islamabad will have to get rollover of $2 billion from the UAE by March-end

Meanwhile, there is another outstanding commercial loan repayment of $700 million to Chinese banks which Pakistan is expecting to be refinanced. The principal amount of debt servicing stands at $5.035 billion while the interest repayment is hovering around $426.88 million, so the total outstanding amount has gone up to $5.462 billion.

Army chief in Saudi Arabia

Chief of Army Staff Gen Asim Munir on Wednesday reached Saudi Arabia as part of an official visit to the Middle East – his first foreign tour since assuming the command of Pakistan Army in late November – to boost bilateral relations and cooperation.

The announcement was made the Inter Service Public Relations (ISPR) which said the army chief would visit Saudi Arabia and the United Arab Emirates from January 4 to 10.

It said Gen Asim Munir would meet senior leadership of the two countries and discuss matters of mutual interests, military-to-military cooperation and bilateral relations focusing on security-related subjects.

The visit comes as Finance Minister Ishaq Dar on Wednesday said Saudi Arabia and China were set to boost Pakistan’s foreign exchange reserves much before the close of this month.

“Our foreign exchange reserves by end-June would be much better than you can think,” he told a press conference in Islamabad.

He said the IMF programme would be completed at all costs, China and Saudi Arabia would enhance their support, government-to-government disinvestments would be completed, and the current account deficit would be about $3 billion less than earlier projections.

Dar recalled that China and Saudi Arabia, during Prime Minister Shehbaz Sharif’s visits in September,  had agreed to increase their support to Pakistan, and the Saudi finance minister later confirmed this to international news agencies.

The benchmark KSE-100 Index closed at 40,716.74 on Thursday with a 177.44-point, or 44 percent, gain as the news about the army chief’s visit to Saudi Arabia rekindled hopes about the much-needed assistance from the Middle East.   

Ali Nadeem – Head of Sales at National First Equity Limited (FNEL) – says it is Chief of Army Staff Gen Asim Munir’s visit to Saudi Arabia which gave confidence and boost to the market by creating positive sentiments. His trip to Saudi Arabia is being considered a positive sign which can unlock financial assistance from the kingdom, he adds.

He said the process got delayed, but Saudi Arabia would increase its support much earlier than the end of this month, while the Chinese loan rollover was also being processed.

Dollar flight to Afghanistan

Finance Minister Ishaq Dar was first to acknowledge smuggling of dollar to Afghanistan but those in the currency market had spoken too last month, saying Pakistan was experiencing large-scale outflow of greenback to the neighbouring country after the Taliban’s takeover of Kabul last year.

It had eroded Pakistan’s foreign exchange reserves with the exchange rate going down thanks to smuggling, fake imports of dollars and Islamabad’s negligence towards the issue, said Malik Bostan – who is the chairman of Exchange Companies Association of Pakistan.

One may recall that Dar has repeatedly pointed out this issue but, sadly, the government remains unable to control the illegal movement for whatever reasons there may be. 

Explaining his point at a press conference in Karachi, Bostan said dollar was available for Rs155 and Pakistan’s reserves stood at $22 billion Taliban took over Kabul. “Now the reserves have sunk to their lowest level in about eight years with a dollar selling for Rs225 in the interbank market. This unhindered flow of the American currency towards Afghanistan has created a crisis for Pakistan.”

Around 15 million dollars used to cross each day from Pakistan to Afghanistan since Islamabad had permitted each person to take $1,000 per day while 15,000 people regularly travel to the neighbouring country daily, he said.

He said two months ago the Kabul regime stated that all Pakistani currency should be converted into dollar or other foreign currencies. Keeping more than 0.5 million Pakistani rupee is prohibited in Kabul and any person found with such amount of rupee would be tried under the anti-money laundering laws.

“For 42 years Afghans have been trading in Pakistan rupee. They have hundreds of billions of rupees. But now they are buying dollars from Pakistan at any cost. They will siphon off the entre dollars from Pakistani markets,” Bostan warned, adding that Pakistan must take up the matter with the Kabul government.

He said commercial banks were buying $120 million to $130 million per month from exchange companies for credit cards. “These cards are legally transferring dollars from the country. However, the government has slashed the annual per card spending limit to $30,000. Earlier, there was no limit on such transaction.”

Bostan said around 15,000 containers left Pakistan without paying import duties in the first quarter of the current fiscal year – five times higher than last year’s figure of 3,000 for the same period.

“The Kabul government has successfully maintained the dollar rate at 88 Afghani and this was due to their policies as they don’t print notes unless and until they get dollars,” he said.

He said exchange companies currently import $3 billion through export of other foreign currencies while the remittances amount to $2 billion per year.

“We can bring $7 billion to $8 billion per year if the government permits us to have agreements with 50 foreign companies for remittances compared to just three we currently have,” he said.


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