FALLING RUPEE CALLS FOR INTERVENTION

AMANULLAH BASHAR
(feedback@pgeconomist.com)

May 28 - June 3, 20
12

The weakening rupee against dollar is feared to aggravate inflationary pressures in view of rupee-dollar exchange rate seeing a sharp 3-day decline of 1.2 percent during last week taking rupee at 92-93 to the US dollar. The declining trend in rupee value is however a source of attraction for the investors buying dollars to make profits.

The State bank has firmly denied the reports in a section of the press that it was also buying US dollar from the market.

The declining trend, according to financial analysts, is driven by a combination of factors including current account dipping into deficit in April 2012, repayment of $393 million to IMF that was due on May 24, 2012, and uncertainty towards Pak-US ties.

Apart from normalization of relations with the US, the declining trend in rupee value against dollar calls for immediate intervention by the financial regulators to stabilize falling rupee, which is a matter of concern especially in view of rising inflation, which has badly affected the purchasing power of the fixed income groups.

The textile exports also failed to pick up significantly this year (up three per cent), the lack of opportunities to export surplus wheat also led to decline in food exports, and oil imports are up 24 per cent primarily due to higher oil prices.

It may be noted that on month on month basis, the oil imports are up 35 per cent to an average $1.2 billion monthly during financial year 2012. However, home remittances by overseas Pakistanis remain healthy with an impressive average of $10.9 billion during ten months of financial year 2012.

While geopolitical situation and higher oil based-income in Middle East may have spurred growth in remittances from the region, the overall foreign exchange reserves are expected to remain under pressure, especially due to repayment to IMF of $1.2 billion due up to December this year.

It is the matter of concern that the US Senate's appropriations sub-committee on foreign aid has recently voted in favor of 58 per cent aid cut to Pakistan in fiscal 2013, to $1billion, slashing $800 million allocated for counter insurgency funds to $50 million only.

However, the proposal is yet to be tabled in the US Senate and House and signed by the President. The proposed cut has potentially tightened the noose over Pakistan to resolve the current standoff with the US and reopen NATO supply routes.

FOREX RESERVES

Pakistan's gross foreign exchange reserves increased by $207 million to $16.311 billion in the week ended on May 18, 2012 from $16.104 billion the previous week.

Foreign exchange reserves held by SBP increased by $152 million to $11.936 billion during the week under review from $11.784 billion a week earlier, while those held by commercial banks increased to $4.375 billion from $4.319 billion. The rise in the reserves was due to some multilateral inflows and remittances.

During the current month until May 18, 2012, receipts from multilaterals amounted to $94 million. Until May 18, 2012, Pakistan has made debt payments amounting to $2.53 billion (inclusive of $809 million to IMF) and other miscellaneous payments of $1.52 billion, while receipts from multilaterals and others amounted to $1.21 billion.

Pakistan had made the first installment under IMF/ Standby Arrangement (SBA) facility of $399 million in the week ended on February 24, 2012, whereas the second installment amounting to $394 million has also been successfully made on 25th May, 2012.

The central bank has denied the reports that it has been aggressively buying dollars from the market to make repayments to the IMF.

SBP has not been conducting any purchases from the market in the recent weeks, including the current week, and the movement in exchange rate has been somewhat sentiment driven rather than any excessive demand and supply mismatches prevailing in the market, said the chief spokesman SBP.

He said that during the first 10-months of financial year 2012, remittances from overseas Pakistanis rose 20.2 per cent to $10.877 billion, which helped balance of payments despite widening of trade deficit.

HOME REMITTANCES

Overseas Pakistanis remitted an amount of $10,876.99 million in the first ten months of the current fiscal year, showing an impressive growth of 20.23 per cent or $1830.38 million when compared with $9,046.61 million received during the same period of the last fiscal year.

Remittances received from all countries of the world showed growth during the first ten months of the current fiscal year.

The inflow of remittances during July-April 2012 from Saudi Arabia, UAE, USA, UK, GCC countries (including Bahrain, Kuwait, Qatar and Oman) and EU countries amounted to $2,987.86 million, $2,386.26 million, $1,922.35 million, $1,263.67 million, $1,226.61 million, and $304.59 million respectively compared with the inflow of $2,085.80 million, $2,091.33 million, $1,677.88 million, $990.92 million, $1,063.49 million, and $290.77 million respectively in July-April 2011. Remittances received from Norway, Switzerland, Australia, Canada, Japan and other countries during July-April 2012 amounted to $785.65 million as against $846.36 million received during July-April 2011. The monthly average remittances come out to $1,087.70 million as compared to $904.66 million earlier, registering an increase of 20.23 per cent.

Last month, an amount of $1,141.02 million was sent home by overseas Pakistanis, up by 10.73 per cent, compared with $1,030.43 million received in the same month of 2011. Almost all of this growth in remittances during April 2012 over the corresponding period of the last fiscal year was through banking channels.

Continued impressive growth in workers' remittances is the result of the efforts made by Pakistan Remittance Initiative (PRI) in collaboration with other stakeholders to facilitate both overseas Pakistanis and their families back home.