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1- KESC PRIVATIZATION
2- KESC REDUCED SECURITY DEPOSIT RATE
3-
FAST GROWING MARKET OF TFCS
4- DEBT RESCHEDULING WITH JAPAN
5- PAKISTAN'S FOREX RESERVES
6- ESTABLISHMENT OF AN ECN?
7- NEW RULES FOR NBFC
8- SDK CHAINS REAL TIME PILLERS

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PAKISTAN'S FOREX RESERVES

Will they keep up the pace in future also?

 

By AMANULLAH BASHAR
Apr 07 - 13, 2003

 

 

Pakistan's foreign exchange reserves continued to grow at an unprecedented rate and have reached the level of over $10.32 billion in the first week of April, 2003. Will this growth in building up the reserves keep up the pace in future also, is the question to ponder upon for the economic managers.

The State Bank increased its reserves by $35 million last week alone took its total holding worth $9.129 billion while the remaining $1.196 billion are with the commercial banks.

It is being anticipated that the foreign exchange reserves may hit the level of $11 billion by the end of current financial year which, about to mature.

It is the inflow of home remittances which are said to be the main contributing factor behind this unprecedented rise in country's foreign exchange reserves. According to an estimate the total amount of receipts from home remittances is going to hit the mark of $4 billion this fiscal year.

Some quarters in the financial sector are of the opinion that the current pace of the inflow from non-resident Pakistanis may not sustain on longer terms hence the abnormal growth in foreign exchange may decline. However, it one side of the picture, the others are of the view that the real cause behind growth in home remittances was the strength of rupee against dollar reflected in the exchange rates, which declined from Rs68 a dollar to the level of Rs58. Besides the economics which attracted the home remittances through banking channels, the factor of patriotism also worked forcing non-resident workers to shift from dollar to rupee.

 

 

Another section of the financial experts feel that element of money laundering was also instrumental behind growth in home remittances. Flight of capital from Pakistan was a common saying in the past due to uncertain political conditions shattering the confidence of the people, especially following the decision of freezing the foreign currency accounts in 1998.

CHECK ON MONEY LAUNDERING

As far as the money laundering was concerned, the State Bank of Pakistan has, however, taken note and issued guidelines for banks to prevent use of the banking sector for money laundering, terrorist financing, transfer of illegal or ill-gotten money and as a conduit for while collar crime.

Under the new guidelines, the banks would require to make all efforts to determine the true identity of every prospective customer. Some of the requirements to check the ill-gotten money include attested copies of national identity card or passport of the individual. In case the NIC does not contain a photograph, the bank should also any, other document such as driving license etc, that contains a photograph. In case of a salaried person, attested copy of the service card, or any other acceptable evidence of service, including, but not limited to a certificate from the employer. In case of illiterate person, a passport size photograph of the new account holder besides taking his right and left thumb impression on the specimen signature card.

Apart from tight fiscal policies at home, the successful rescheduling of foreign debt amounting to $38 billion was the major factor giving relief to the government in building up the foreign exchange reserves. The debt servicing was the main eroding factor and never allowed the economic manager to take sigh of relief in the past. As a result of rescheduling, the economy got a breathing space after rescheduling of $15.5 billion Paris Club loans and almost the similar amount Pakistan owed to World Bank and the IMF was also rescheduled. The national economy also got relief in the form of write offs of the loans from individual countries. In this respective, the United States has waived $1 billion out the total loans of $2.9 billion.

 

 

The waivers, write offs and rescheduling help providing relief to the economy. As a result of this development, the debt servicing is expected to come down from 75 per cent to 25-30 per cent of the foreign exchange earnings. This would certainly provide the country with a much needed fiscal space to allocate more money for the development projects, particularly in the fields of health, education and poverty alleviation programs.

The economic activity in the undocumented sector has been adversely affected due to tight fiscal measures within the country. It is a hard reality that cottage industries which are mostly out of the domain of documented economy generate employment opportunities much more than the organized sectors in the documented economy. Consequently, the unemployment rate increased rapidly over the years and doubled in last ten years.

The volunteer separation schemes introduced in various public sector organizations and the financial sector also added to the problem of unemployment which is said to be the main reasons behind increasing the crime rate in the country.

There is an immediate need for launching development projects which on one hand help improving the living standards while create job opportunities on the other hand. Now the time has come that the benefits of the growing economy should reach to common man also.