KARACHI (March 08 2003) : Pakistan's foreign exchange reserves achieved the landmark of 10 billion dollars on Friday, much earlier than the targeted time.
A spokesman of the State Bank of Pakistan confirmed the reserves have reached 10.155 billion dollars.
The reserves took a leap just in a week when it received 530 million dollars from Washington as the payment of logistic services being provided by Pakistan to the United States.
The government had fixed a target of 10 billion dollars to attain till the end of the current fiscal year.
The main reason for the soaring of foreign exchange reserves was the rapid inflow of remittances from the overseas Pakistanis.
However, many bankers were of the view that most of the dollar-holders have liquidated their forex holdings because of continuous appreciation of the rupee and extremely low return on dollar deposits.
This is the reason that foreign exchange reserves of private commercial banks have been declining for last three months.
Though the rapid increase in remittances was one of the major reasons for accumulation of dollars, the central bank has also been buying dollars to keep it at a certain level for the benefit of the exporters.
Importers' demand for dollars has come down in the wake of its possibility for further decline against the rupee.
The government claims the record high foreign exchange reserves as one of its biggest achievements, which brought out Pakistan from ever looming threat of default.
Adviser to the Prime Minister on Finance and Economic Affairs Shaukat Aziz had said this week that he expected 4.3 billion dollars remittances by the end of the fiscal year.
Analysts said if the total remittances are 4.3 billion dollars for the whole year, then the per month average is 358 million dollars.
There are still four months to complete the fiscal year.
If the average 358 million dollars per month continues, the total reserves might cross 11 billion dollars mark by the end of June, analysts said.
The influx of dollars and their accumulation curtailed the historic attraction for the general Pakistanis who used to keep the greenback as their savings.
The return on dollar deposits has come down extremely low as the US Federal Reserve maintaining 40-year low lending rates.
Pakistan is facing difficulty to place its dollar reserves in the world market to earn some profit.
Shaukat Aziz told Business Recorder in Islamabad on Friday 10.155 billion dollars reserves are equal to eleven months of exports and show economic sovereignty and strength of the country.
This growth in remittances is due to a combination of increased remittances, growth in exports, enhanced capital flows and loan disbursements from the donor agencies.
Spokesman of Finance Ministry Dr Ashfaq Hassan Khan told Business Recorder that the $ 10 billion mark was the target for end-June 2003, which has been achieved prior to that and now the government would strive for attaining $ 11 billion reserves before this fiscal year.
On average the government has been gathering $ 500 million per month and with this rate it can reach at $ 11 billion mark before the next fiscal year 2003-04 dawns.
The government has been following the sterilisation policy in forex market so that money supply could be controlled and thus to keep inflation under control.
This achievement of reserves was not an easy lunch because it eroded the profit of the State Bank ie almost Rs 20 billion.
It was a jolt to the fiscal aspect of the economy cutting the no-tax revenues of the government.
On March 6 the reserves were $ 9.63 billion, said Dr Ashfaq.
Pakistan had started gathering reserves around June 2001, which got a boost from the Sept 11, 2001 events and the flow of remittances was the main contribution. During the last two-three months the highest ever remittances were received by the country that were near $ 3 billion a month.
During the same period the government has been paying a large amount of foreign debts around $ 4 billion annually.
This massive reserve growth has stabilised the rupee rate against the dollar and has eased the foreign trade of the country.