The reserves are expected to exceed $11 billion by June 30, 2003


May 19 - 25, 2003



The country's foreign exchange reserves have already exceeded the target of $10.4 billion set for the current financial year ending on June 30, 2003. According the latest figures released by the State Bank of Pakistan total reserves reached $10.452 billion on May 3 (Saturday) including $9.236 billion with SBP and $1.216 billion with commercial banks. This is an all time record in country's history.

In view of the continued rising remittances from overseas Pakistanis, the reserves are expected to exceed $11 billion by June 30, 2003. The remittances are likely to cross $4 billion during the current financial year as against about $1 billion in 1999-2000.

According to a handout of the central bank the balance of payment surplus rose to $4.4 billion from $2.2 billion in the same period last year. Pakistan's balance of payments surplus for the fiscal year ended June 30, 2002 was $2.83 billion as compared with $257 million a year earlier.

The payments surplus rose on money from overseas Pakistanis working in countries such as Saudi Arabia, Kuwait and the US who sent home $3.2 billion in the nine months ended March 31, 2003 more than double the previous year's amount. They sent more money through official banking channels after a crackdown on illegal 'hundi' network of moneychangers.

Higher foreign investment of $657 million in nine month as compared with $287 million in the same period a year ago, also boosted the payments surplus, the SBP said. The rising remittances and foreign investment helped foreign currency reserves triple since September 11, 2001, to $10.359 billion.

In view of the rising remittances from Pakistani expatriates, to exchange reserves are expected to exceed 11 billion dollars a seemingly ambitious target for the current fiscal year. The earlier 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.

In view of this encouraging indications the government had 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 from the exchange reserves available with 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 its bilateral debt worth $12.6 billion has been re-profiled, which has translated into a monetary benefits of approximately $3 billion over the years of the agreed timeframe under the Paris Club agreements.

"With Pakistan's foreign exchange reserves at $10.43 billion as of today, and with expectations that the figure will cross the $11 billion mark by June this year, the government would go retiring the expensive debts from 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 the juncture would not hamper the country's export and the $10 billion mark can also act as a cushion in any untoward situation.



As a matter of fact this process of retiring expensive debts has already started. Pakistan has paid SDR 44.078 million ($60.38 million) under contingency and compensatory to IMF. These are IMF expensive resources which Pakistan has started paying as per its policy to early repay the costly debts. Pakistan has to pay total SDR 176.35 million ($241.59 million) under contingency and compensatory of IMF. Total IMF facilities extended to Pakistan are to the tune of SDR 1.44 billion ($1.97 billion). This payment was in addition to SDR 3.158 million ($4.32 million) against Extended Fund (Ordinary Resources) and SDR 18.75 million on standby (expectation), which are normal due to repayments. According to the schedule, Pakistan also paid SDR 5.178 million ($ 7.09) million as charges on ordinary GRA Purchases on February 7, 2003.

Pakistan will start early repayment of selective costly loans of IMF, Asian Development Bank and the World Bank by June this year. Details in this respect are being worked out in the debt management wing of the Ministry of Finance. "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 standby arrangement". According to an estimate the told amount of loans considered expensive comes to about $5 billion.

As the country's debt burden sharply increased, specially during the last two decades, the economy was burdened with a high level of debt-servicing liability. At one point of time it is said to have consumed as much as two-third of the total annual current expenditure. Such a high cost of servicing the debts resulted in the need for further borrowing over the years. It also resulted slashing of the government's development expenditure. It went down from eight per cent to three per cent of the gross domestic product. In times of financial crunch the cut was almost always applied on social sector development. The delay in the completion of infrastructure projects, quite often due to lack of timely funding, had an adverse impact on the overall pace of development effort. A high debt burden had become unsustainable requiring the kind of strategy which is now being put in place.

It has now been rightly decided to repay the high cost multilateral loans. Then yet another decision is to contract only soft term loans. Earlier, bilateral debts of $ 12 billion has already been rescheduled creating considerable space in the economy.