Decline in foreign exchange reserves leads to BoP Crisis

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The country is heading towards a balance of payment (BoP) crisis with steady decline in foreign exchange reserves in recent months, said a senior member of the economic team. Talking to newsmen on the sidelines of Pakistan Institute of Development Economics conference here on Wednesday, the official expressed the fear that the balance of payment crisis is expected to deepen in March 2013 as budgeted foreign inflows are not being disbursed.

The official said that a decline of $4 billion in official foreign exchange reserves was recorded by the end of June 2012 as compared to the same period of last year as total official foreign exchange reserves declined to $10.8 billion from $14.8 billion.

According to the official, total foreign exchange reserves at present stood at slightly over $9 billion after outflows of $1 billion in October 2012 on various accounts including some repayment to the International Monetary Fund (IMF) for Stand By-Arrangement. He expressed the fear that official foreign exchange reserves may dip below $6.8 billion by the end of current fiscal year, however, any upward movement in oil prices in the international market would create serious problem for the country much before than anticipated. In reply to a question, he said that remittances and $1.18 billion payment by the US for Coalition Support Fund (CSF) has provided support to the external account and balance of payment position in the first few months of the current fiscal year.

The official was not hopeful that budgeted foreign inflows on account of 3-G license, payment of PTCL privatisation by Etisalat and Eurobond would be possible in the current fiscal year and eventually there would be greater pressure on external account and budget deficit. He said that the 6.1percent budget deficit projection by the IMF for the current fiscal year is realistic and 4.7 percent budget deficit target seems simply unachievable.

Sources said that the senior official of State Bank of Pakistan (SBP) are going to hold a meeting with the high-up of the Finance Ministry for discussion on the issue of budget deficit for the current fiscal year in the light of current scenario.

The official said that low foreign exchange reserves and high budget deficit is not a good omen for foreign exchange rate as there would be pressure on the rupee. To a question about the recent decrease in rate of inflation, he said it was primarily because of decrease in gas and some food items' prices and it would remain to be seen whether how long this trend would sustain as core inflation is still hovering in double digits.

Courtesy: Business Recorder


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