There has been a lot of debate on reforms in Pakistan. Unfortuna-tely, most of the discussions and recommendations run short at implementation stage. Take the example of gold, it is believed that majority of investment and trade in this much loved commodity is through unorganised and grey market. This is in spite of the fact that Pakistan Mercantile Exchange provides an excellent platform not only to document this sector, but also ensure delivery of gold in its purest form to consumers and jewellers alike. This will present many opportunities to the government, retail business, and streamline the buying and selling of gold in Pakistan. An organised gold sector will also help in the usage of gold as collateral.
One of the key impediments facing the borrowers in Pakistan is lack of instruments, which are acceptable by the financial institutions as ‘credible’ collaterals. Under the prevailing circumstances gold can be evolved as a ‘risk free’ instrument. However, this needs bringing change in the mindset of regulators, bankers, investors and also creation of a ‘market’ where gold bars can be traded freely.
Over the years Pakistan has succeeded in creating a robust and sustainable foreign exchange market. The biggest advantage has been that now bulk of influx and outflow of foreign exchange is through the formal banking system. An evidence of the paradigm shift is that now overseas Pakistanis remit over US$2 billion per month. It is believed that once the country accumulates substantial foreign exchange reserves, remitting money from Pakistan may also become easy.
Following the development of credible foreign exchange market in the country, the time has come to create a fully documented and sustainable gold market in the country. The first step in this direction and achieving the target will be an addition/amendment in Pakistan’s Import Policy allowing import of gold bars. This will be possible only after the central bank also starts providing foreign exchange for the commercial import of gold.
However, before deliberation on this point, it is necessary to have a critical view of the existing gold market, identify key impediments and explore for possible solutions. Ironically, at present limited data is available on the influx of gold in the country, demand and consumption. However, the market participants have consensus on certain basic numbers.
It is believed that the demand for gold in the country is around 200 tons per annum. Out of this half is met through ’recycling, and remaining through ‘grey market’. However, there is no credible evidence of these numbers.
In the absence of official numbers, the market consensus numbers can be used for carving the future strategy and also the regulatory framework. Following the Turkish model Pakistan can allow import of gold by ‘approved vendors’, who will also be required to sell the imported precious metal through the commodity exchange, PMEX, operating in Pakistan.
One of the prime concerns is that allocation of foreign exchange for the import of gold could erode country’s paltry foreign exchange reserves. Experts are of the view that imposition of quantitative restrictions on import of gold will allow the central bank to monitor/control monthly and annual allocation of foreign exchange for the gold import and keep the amount within budgetary allocations.
In Pakistan the prevailing consensus is that gold is a non-remunerative investment. Some of the experts go to the extent of saying that bulk of the gold owned by Pakistanis either rests in vault or the pillows. However, the pragmatic experts say that the situation prevails only because of the absence of gold markets in the country.
These experts are also of the opinion that once officially imported gold, the basic raw material for the production of jewelry, is available freely, export of jewelry will be improved substantially, easing pressure of the limited foreign exchange reserves of the country.
These experts go to the extent of saying that multilateral financial institutions also lend foreign exchange under various ‘structural adjustment programmes’. Pakistan should approach these institutions for securing such loans. If approved, Pakistan will not have to use its limited foreign exchange for the import of gold.
Experts strongly believe that for becoming fully compliant to FATF regulations, Pakistan must exercise this option at the earliest. This may be a long drawn process but if approved will open new vistas for the gold consumers of Pakistan.
Copyright Business Recorder, 2021
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