Pakistan should invest about 10 per cent of its foreign exchange reserves through international investment banks



Feb 03 - 09, 2003 



In view of the rising remittances from Pakistani expatriates, the foreign exchange reserves are expected to exceed 10 billion dollars a seemingly ambitious target for the current fiscal year. This target included remittances of $3 billion, which is now expected to exceed $4 billion as during the first six month of the current year (July-December 2002) it has exceeded $2.1 billion. The forex may exceeds $11 billion by June 30.

In view of this encouraging indication, the government has asked the State Bank of Pakistan (SBP) to work on the possibility of retiring expensive debt ahead of schedule after the country's foreign exchange reserves exceed US $10 billion.

Another proposal being considered is that Pakistan should invest about 10 per cent of its foreign exchange reserves through international investment banks.

"Retiring expensive debt before schedule has been discussed and the SBP has been asked to work out the details in this regard. Such debts would be retired form the exchange reserves available with the government in excess of $10 billion, an official source told this correspondent. He said Pakistan had got a breather in terms of debt rescheduling by the Paris Club under which it bilateral debt worth $12.6 billion was being re-profiled, which will translate into a monetary benefit of approximately $3 billion over the years of the agreed timeframe under the Paris Club agreements.

"With Pakistan's foreign exchange reserves at $9.4 billion as of today, and with expectations that the figure will cross the $11 billion mark by June this year, the government would go for retiring the expensive debts form the amount in excess of $10 billion," the official said.

When asked why was the government waiting for the forex reserves to exceed $10 billion before retiring loans, the official said, "Strategically, foreign exchange reserves worth $10 billion are considered respectable and the government would like to maintain them at that level". The official also said retiring the expensive debts with forex reserves at that juncture would no hamper the country's exports "and the $10 billion mark can also act as a cushion in any untoward situation, including a possible invasion of Iraq by the United States".



The official said the expensive debts' actual retirement might take some time "since it would require a lot of effort by the government to identify the expensive debts and after the SBP completes its findings the Debt Management Cell of the Finance Division would give its input on the idea".

"Currently the country's total foreign debt liability is approximately $36 billion, of which $12.6 billion is the official bilateral debt being re-profiled under the Paris Club agreement, while Pakistan owes nearly $14.7 billion in debt to the multilateral agencies," the official said.

"Besides, there are some expensive private debts, non-guaranteed debts, and some expensive International Monetary Fund (IMF) loans contracted by Pakistan under the stand-by arrangement," he said.

The country's foreign exchange reserves have risen noticeably during the last year in the backdrop of Islamabad support for the US-led war on terror as well as due to foreign remittances from expatriate Pakistanis, which have started coming in through official banking channels.

The Governor State Bank, Dr. Ishrat Hussain disclosed in a public statement "we are going to hire an international consultant company to advise us and screen some of the international investment banks", the SBP governor told Reuters in an interview recently. Pakistan's foreign exchange reserves rose to a record high of $9.349 billion in the week ending December 28, of which the central bank's direct holdings were $7.577 billion, he added. Dr. Hussain said the strong reserves position had enabled Pakistan to plan the investment move for the first time. The central bank did not have in-house capacity to manage the reserves, he added.

"It is for the time we have surplus," Dr. Hussain said. "The central bank has to be very cautious and conservative" that it did not expose itself to any risk.

Hussain did not give any deadline for the proposed investments, saying, "We are working on it".

Pakistan foreign exchange reserves have soared on the back of aid and grants from the United States and its Western allies in return for Islamabad's support for the US-led war in Afghanistan. The Paris Club of donor countries also rescheduled $12.5 billion of Pakistani's foreign debt, allowing Islamabad the much-needed breathing space to revive its ailing economy.

Remittances from Pakistanis living abroad through official banking channels also helped the country boost it reserves.

Earlier, most Pakistanis had sent money through unofficial or private channels. But the international crackdown on money laundering in the wake of the September 11, 2001 attacks in the United States forced them to switch. Pakistan's foreign exchange inflows through banks rose to $2.284 billion in the first six months of fiscal 2002-2003 July/ June from $789 million in the same period last year.