The net foreign assets (NFA) of the banking system registered a decline of Rs 80.8 billion during July-February FY06, compared with Rs 43.5 billion in the corresponding period of FY05.
The State Bank of Pakistan's second quarterly report for the year 2005-06 said that the FY 06 decline in the NFA was the result of the widening trade deficit that resulted in massive outflow of foreign assets and lower net receipts from external financing.
The report further says that within the banking system, both the SBP and the scheduled banks contributed to the overall decline in NFA.
The decline in SBP NFA was quite in line with the volume of its interventions in the forex market to reduce the exchange rate volatility, while the decline in scheduled banks' NFA was the outcome of expenditure of a stable exchange rate that resulted in a robust growth in trade related lending against FE-25 (foreign exchange circular No 25) deposits.
The report on reserve money was also not very rosy. It said that reserve money growth registered significant deceleration during the period under review while it increased by Rs 87.2 billion (9.59 percent) during July-February FY05.
This deceleration has been attributed to a slowdown in both SBP NDA and SBP NFA during the period under review.
In particular, the report said, the decline in SBP NFA during July-February FY06 was considerably larger than decline during July-February FY05. This was on account of lower inflow under programme loans (mainly from ADB and World Bank) during July-February FY06 compared with July-February FY05.
This slowdown in SBP NDA, despite higher government borrowing from SBP during July-February FY06, was attributed to a sharp decline in SBP OIN (other items net) during July-February compared with July-February FY06.
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