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China has agreed to place some $500 million with State Bank of Pakistan (SBP) to defuse pressure on current account and strengthen the foreign reserves from depletion. Sources told Business Recorder on Monday that "this development took place during President Asif Ali Zardari's recent visit to China, where he discussed the challenges, which Pakistan's economy is facing."
This achievement is part of government's efforts to reduce pressure on foreign exchange reserves as well as on the rupee, which has depreciated by some 7 percent during the current fiscal year and has crossed Rs 96 level against the dollar. Sources said this is not the first time that China is going to place dollars with the SBP as in 1998, when Pakistan was facing massive downfall in the reserves, China deposited some $250-300 million with the SBP and this amount has already matured in June 2011.
During the President's visit, China assured full support for Pakistan's ailing economy. The country's reserves continue to decline and now stand near $15.5 billion. Sources said China has agreed to place around $500 million as an investment to build up Pakistan's depleting forex reserves besides an investment of 70 million Chinese yuan in power sector to overcome energy crisis. China is keen invest in the hydle related power projects instead of gas and furnace oil based projects.
Pakistan's current account balance, which was surplus during last fiscal year, is facing massive deficit followed by high goods and services deficit. The country's current balance has posted a deficit of $3.394 billion during July-April of FY12, as compared a surplus of $466 million in the corresponding period of FY11.
Sources said these types of efforts will help strengthen forex reserves and avoid any new programme from International Monetary Fund (IMF) as previously in November 2008, Pakistan was compelled to rejoin IMF programme to avoid any default on international front. The country's reserves are again on the decline owing to rising current account deficit and analysts expect that Pakistan will go for a new IMF program, if necessary measures are not taken to generate fresh inflows.

Copyright Business Recorder, 2012

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