Remittances feed SBP reserves

Oct 11, 2013| Courtesy by : dawn.com

SHAHID IQBAL KARACHI: Remittances sent by overseas Pakistanis rose to $3.9 billion in the first quarter. The amount is equal to foreign exchange reserves held by the State Bank as reported on Thursday.

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The grim situation of foreign exchange reserves has made remittance inflow critical for shoring up foreign exchange reserves.

Total liquid foreign reserves held by the country stood at $9,127.6 million on Oct 10. Foreign reserves held by the SBP stood at $3,953.6m while net foreign reserves held by banks other than SBP stood at $5,174.0m.

Though in absolute terms, export proceeds are higher than remittances, trade imbalances consume proceeds from this source.

The State Bank reported on Thursday that remittances for July-September increased by 9.14pc to $3.927bn.

In the same period last year, remittances were $3.6bn.

Remittances in September were higher by $43 million compared to August, but these were 13pc more than the remittances received during the same month last year.

The monthly average also rose to $1.309bn while it was $1.199bn during the first quarter of last year.

The State Bank on Thursday issued weekly position of the foreign exchange reserves of the SBP as well as commercial banks.

The reserves of the State Bank are falling sharply despite first tranche of IMF and loans from commercial banks.

However, commercial banks have created a history by holding dollars more than the State Bank.

Commercial banks succeeded to maintain their gradual increase in the reserves which rose to $5.174bn, 31pc higher than the State Bank’s reserves.

Pakistan hopes to receive more inflows from IMF, World Bank and Islamic Development Bank that would certainly increase reserves.

However, currency experts are of the view that future of exchange rate regime is more vulnerable as they believe the current exchange rate is artificially structured while reserves are declining each day.

The State Bank used millions of dollars to stabilise the exchange rate during the last three months while the local currency lost over 7pc against the dollar in the inter-bank market.

Currency experts said latest development in the US may result in devaluation of dollar in the global market that may support the local currency to remain at the current position.

The US government is facing political deadlock over an economic issue of debt ceiling which the government wants to increase. The government will default on Oct 17 if the debt ceiling is not increased.

China having $1.28 trillion in US treasury warned that US default could cause investors to dump US dollar which would sharply increase value of Yen.

Dumping of US dollar has been a nightmare for American economists for years as dollar is the reserve currency for most of the countries and any shock could cause loss of billions to them.