Pakistan would need to cover a $3 billion gap in its current account in FY 2004-05, if the forex reserves position is to be kept stable at present level.
According to knowledgeable sources, forex reserves grew by a modest $239 billion in the last six months despite heavy outflows and a lower inflow. The State Bank of Pakistan had a battle on its hands but it successfully, by and large, kept the dollar-rupee parity stable to give comfort to both exporters and importers as imports surged by 26 percent to $15.5 billion and exports rose by only 10 percent to $12.3 billion last year.
Comparative graphs of regional currencies ie Indian rupee, Pak rupee, Bangladesh Taka and Sri Lankan rupee for the last six months, clearly exhibit the level of success achieved by SBP in avoiding volatility in rupee parity despite the huge swings between major currencies impacting most currencies in the region.
The home remittances were lower than last year's figure at $4.2 billion. But were higher than the budgetary target of $3.6 billion. They are now projected to be near $3.9 billion for FY 2003-04.
Multilateral loans inflow was around $800 million and payment for logistic support given to US administration in Afghanistan amounted to $750 million. Besides this, there was an inflow of $500 million from the Euro bond issue. The net receipts in the year amounted to $5.95 billion in FY 2003-04.
On the outflow side in FY 2003-04, imports outpaced exports by $3.2 billion. Government debt repayment amounted to Rs 3.5 billion and privatisation sector debt repayments aggregate was Rs 550 million.
Despite a $2.3 billion deficit, the reserves went up to $12.376 billion as of June 30, 2004 as against $12.137 million six months before - a rise of $239 million. SBP had to sell $510 million from its reserves in the inter-bank market to keep the market in balance and the parity within a tight range.
According to bankers, SBP in future could avoid selling dollars in the market if the inter-bank market captured the cash inflow in the open market operated by exchange companies. They say in the past 80 percent of the cash from money changers was flowing into the inter-bank market. Now, with 12 to 13 exchange companies holding licences to send cash currencies abroad, there is a heavy leakage with hardly any inflow into banks as this is being used to basically the need of the black money operators.
Banks would like SBP to link the renewal of Exchange Company and money changers' licences to sale of currency to the inter-bank market. "At least 50 percent of the cash must be deposited with banks by them. Only then should their licences be renewed. This way at least $1.5 billion will be injected in the inter-bank market," the bankers said.
Further, they said Pakistan would avail of the one billion dollar debt write-off from the US in FY 2004-2005, therefore there was no urgent need to pre-pay any further debt.
With a little bit of help from multilateral and bilateral sources and the likelihood of logistic support continuing for Nato operations in Afghanistan, the current account gap cannot only be bridged easily but also the forex reserves could rise further if SBP maintained the level of vigilance exhibited prior to 2004. This also requires CBR to effectively block the leakage of cash going out of the country at the airports. They need to rigorously check the bag carriers of exchange companies and money changers.
"If NBP could somehow handle the transaction of taking forex cash abroad as the sole operator the leakage would effectively be minimised," the bankers feel.
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