BANKS (AUTHORIZED DEALERS) CAN BORROW DIRECTLY FROM INTERNATIONAL FINANCIAL INSTITUTIONS

AMANULLAH BASHAR
June 18 - 24, 2007

The State Bank of Pakistan (SBP), as a part of its strategy for effective management of market liquidity, has allowed the banks (Authorized Dealers) to raise foreign currency borrowing directly from International Financial Institutions for converting into Pak Rupee and use the raised fund for liquidity management.

However, the Authorized Dealers have been allowed to borrow foreign currency to a maximum of 50 percent of their unimpaired Capital as per their last audited Financial Accounts.

The borrowing is permitted in currencies namely US Dollar, EURO, and POUND & Japanese Yen only, while the minimum tenor of the foreign currency borrowing should not be less than one year. The borrowing bank (Authorized Dealers) will be allowed to make payment of the principal amount in bullet at maturity or may star repayment of principal in installment after one year. However, frequency of the interest payment may be made in accordance with the related repayment schedule.

It has been further clarified that interest may be payable at a rate not exceeding the relevant LIBOR+1.50 percent. Any exception to the above rate should be referred to Exchange Policy Department the state bank of Pakistan for prior approval.

The authorized dealers will not be allowed to offer any security/collateral/guarantee whatsoever to the lenders as the borrowing will be clean and based on balance sheet strength of the borrowing bank. The borrowing bank (dealer) would not be allowed to sell such foreign currency funds out-rightly in the inter bank market or to the customers. Similarly, such foreign currency funds cannot be used by borrowing bank for extending any foreign currency trade loan facility.

Borrowing bank (authorized dealer) will be allowed to enter into foreign currency/rupee sell/buy Swaps in the inter-bank market. Though, the tenor of these Swaps may range from one month to one year, however, at any point in time the outstanding amount of related net forward purchase should not be lower than the foreign currency amount borrowed under this arrangement.

The borrowing banks are also advised to monthly report foreign currency transactions to banking surveillance department and exchange policy department by 10th day of the following month.

REMITTANCES TO CROSS $5 BILLION MARK

During eleven months (July-May) of the current financial year 2006-07, Pakistan received a record amount of $4,988.01 million as worker's remittances compared to $4,136.25 million in the corresponding period previous fiscal year.

Registering an increase of $851.85million or 20.59 percent. The amount of $4,988.10 million includes $2,57 million received through encashment and profit earned on foreign exchange bearer certificates (FEBC) and foreign currency bearer certificates (FCBC).

During last month may 2007, Pakistani workers remitted the highest ever amount of $537.98 million in a single month. They remitted $506.57 million May 2006, depicting an increase of $31.41 million or 6.20 percent as compared to May 2007. The previous highest amount remitted in a single month was recorded in March 2007 when overseas Pakistanis sent an amount of $520.24 million home.

The inflow of remittances during first 11 months of the current fiscal year from USA, Saudi Arabia, UAE, GCC countries including Bahrain, Kuwait, Qatar and Oman, UK, and EU countries amounted to $1,319.47 million, $927.09 million, $771.10 million, $689.17 million, $392.59 million and $136.53 million respectively. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries during the first 11 months amounted to $749.58 million as compared to $652.03 million the corresponding period of the last fiscal year, showing an increase of $97.55 million or 14.96 percent.

The monthly average remittances for the period July 2006- May 2007 comes out to $453.46 million as compared to $376.02 million during the same period of the previous fiscal year registering an increase of 20.59 percent.

The inflow of remittances into Pakistan from most of the countries of the world increased last month as compared to May 2006.

According to break up, remittances from USA, Saudi Arabia, UAE, GCC countries including Bahrain, Kuwait, Qatar and Oman, UK and EU countries amounted to $143.35 million, $99.49 million, $97.59 million, $79.29 million, $37.99 million and $13.45 million respectively as compared to the corresponding receipts from the respective countries during May 2006 i.e. $124.56 million, $86.29 million, $70.70 million, $60.09 million, $53.60 million and $12.86 million. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries during May 2007 amounted to $66.49 million as compared to $89.18 million during May 2006.