* A drop of more than $400 million recorded during one week
By Mushfiq Ahmad
KARACHI: Pakistan’s foreign exchange reserves dropped to $6.92 billion during the last week, down by more than $400 million or 5.46 percent from $7.32 billion the country held during the previous week.
Foreign reserves held by the State Bank of Pakistan stood at $3.71 billion, down by over $320 million or 7.94 percent from $4.03 billion the previous week. Net foreign reserves held by banks other than SBP stood at $3.20 billion, falling by more than $80 million or 2.43 percent from $3.28 billion.
According to SBP figures, Pakistan spent $3.646 billion on import payments in September, which means the current amount of reserves can cover less than two months of imports. The reserves are now down by 58 percent from their October 2007 peak of $16.486 billion.
The difference between reserves held by SBP and other banks now is hardly $500 million. In October 2007, the difference was $12 billion.
Extraordinarily large trade and current account deficits have eaten away the foreign exchange reserves by half during last one year, as the central bank had to spend dollars to protect the rupee from extreme volatility.
The government is desperately seeking funds from friendly governments and multilateral institutions to finance its current account and fiscal deficits and also boost foreign exchange reserves. The Asian Development Bank released $500 million to the government in the beginning of October, but that hasn’t helped much. The country’s needs are much larger than that. Government officials are currently meeting representatives of International Monetary Fund in Dubai to inform it of Pakistan’s economic problems and possibly seek funding to avert a default on external payments.
Since the beginning of the current calendar year, the central bank has been intervening in the foreign exchange market quite frequently to support the rupee, which was sharply losing its value against the dollar. Besides, the central bank has to give dollars to banks for their customers’ oil import payments. Whereas this support extended to rupee resulted in sharp depletion of foreign exchange reserves, it did not succeed in stopping the rupee’s slide. The rupee has lost more than 32 percent value against the greenback since January.
Pakistan’s foreign exchange reserves had built up sharply after the collapse of twin towers in the United States on September 11, 2001, thanks to increased inflows of foreign exchange from Pakistani expatriates. Workers living abroad had started sending larger amounts back home because they feared freezing of their accounts. Reserves increased from $3.21 billion at the end of 2000-01 to $6.43 billion at the end of 2001-02; $10.71 billion at the end of 2002-03; $12.33 billion at the end of 2003-04; $12.62 billion at the end of 2004-05; $13.13 billion at the end of 2005-06; and $15.61 billion at the end of 2006-07.
Source: Daily Times, 31/10/2008