Pakistan's Foreign exchange reserves down over $4 billion in fiscal year 2008

The country's foreign reserves have shown a sharp decline of over four billion dollars during the last fiscal year due to the rising imports and current account deficit. At the beginning of the last fiscal year, the country's foreign reserves were sufficient for six months, while at present they have been enough for less than four months.
During the first quarter (July-September) of the last fiscal year, the country's foreign reserves started increasing rapidly and reached the historical level of 16.38 billion dollars in the first week of November 2008.
However, the rising current account deficit and import bill, followed by the increasing oil prices in the world market, greatly impaired the country's foreign reserves. A more severe decline occurred after the imposition of the state emergency, in the first week of November 2007.
A rapid decline of about 5 billion dollars in the foreign reserves was witnessed after the imposition of the state of emergency, as it stood at 16.37 billion dollars on November 3, 2007 as compared to 11.28 billion dollars on June 28, 2008. Since the imposition of the emergency on November 3, 2007, huge outflows have been registered from the Special Convertible Rupee Account (SCRA), analysts said.
They said the rising import bill and current account deficit are some of the main reasons of the decline in the foreign reserves, besides insufficient increase in exports. The oil price in the world market has touched a new peak of 142 dollars per barrel, which led to spending of more amounts on the import of oil, they said.
"Pakistan has been compelled to pay huge amount on oil import, due to the soaring oil prices in the world market, and the government did not increase oil prices in the local market as a measure of relief for the masses," the analyst added.
The State Bank of Pakistan's (SBP) statistics show that overall foreign reserves have registered a 27 percent decrease during the last fiscal year. The country's overall foreign reserves stood at 11.2845 billion dollars as on June 28, 2008, down from 15.6137 billion dollars as on June 30, 2007, depicting a dip of 4.23292 billion dollars during the fiscal 2008.
The statistics revealed that huge depletion was witnessed in the SBP reserves, which have been calculated at 4.703 billion dollars to 8.625 billion dollars on June 28, 2008, they were at 13.328 billion dollars on June 30, 2008.
The reserves, however, held by the banks have shown a strong position and despite the decline in the SBP reserves the banks' foreign exchange reserves have gone up by 373.8 million dollars.
The reserves held by banks reached 2.6591 billion dollars during the week ended June 28, 2008, which previously stood at 2.2853 billion dollars on June 30, 2007. "After the imposition of emergency rule, foreign investors have withdrawn some 400 million dollars from the stock market," an economist said.
Overall, an outflow of 4.682 billion dollars had been witnessed in the portfolio investment against the inflows of 4.449 billion dollars during the fiscal 2008, he added.
Although huge inflows of remittances have been registered during the first half of the current fiscal year, yet not a single privatisation transaction has taken place during the current fiscal year. Increasing payments are leading to the decline of foreign reserves.
It may be mentioned here that during the fiscal 2006-07, the reserves had surged by 19 percent to 15.6137 billion dollars benchmark as compared to 13.1369 billion dollars during the fiscal 2005-06.