Pakistan’s foreign exchange reserves falling fastest in Asia
Irshad Salim — Pakistan’s economic managers have flagged off a long-awaited plan to raise as much as $1 billion from its diaspora in its latest effort to boost foreign-exchange reserves that have dropped close to the lowest in three years.
The government now plans to launch an overseas certificate in U.S. dollars and rupees by June to raise between $500 million and $1 billion a year, Zafar Masud, director general of National Savings at the finance ministry, told Bloomberg by phone on Monday.
The government seeks bids for financial managers by April 30 for certificate sale due by June, he said.
“We were among the only few countries which didn’t have this product for expats,” said Masud. The sale will offer returns “better than what they’re getting in their home markets,” Masud added.
The $1 billion bond idea was first suggested by the writer at a seminar in Riyadh in December 2013. A year later in January 2014, the then PM Nawaz Sharif announced his government would float an investment fund to tap overseas Pakistanis while on a visit to the Karachi Stock Exchange.
Pakistan’s economy is facing headwinds with foreign exchange reserves dropping at the fastest pace in Asia in the past year, and the incumbent government headed by the PML-N party must take steps before elections in July.
The announcement which expats have been waiting for several years, is timely, and could yield positive results if marketed and managed properly, said several Pakistanis overseas and some financial experts.
The government also announced an amnesty offer this month that allows overseas Pakistanis to repatriate funds after paying a 2 percent one-time cash tax and legitimize their assets abroad who may have evaded taxes and or laundered their monies.
Such ‘hidden assets and wealth’, many speculate, could be somewhere close to $800 billion.
Those Pakistanis holding dual nationality, and having access to home equity, commercial credit lines, small loans facility, high net worth, etc. according to an estimate have combined total disposal income and investment potential in the range of $1.125 trillion and $1.5 trillion.
Such Pakistanis, whose number runs in several millions overseas, can get better than what they’re getting in their home markets even after borrowing from their local institutional lenders.
The economy remains at risk of a widening current account deficit due to significantly maturing external debt repayments and slightly lower worker remittances in the remaining three months of FY18.
The State Bank report says Pakistan may attract maximum remittances of $20.5 billion from overseas workers in FY18 that would be slightly lower than the target of $20.7 billion.
Consequently, the deficit will continue to eat fast the foreign exchange reserves and “keep economic managers engaged in making short-term international borrowing”, The Express Tribune reported.
The maturing external debt obligations and the consequent drop in the forex reserves had made it inevitable to resort to the international capital market. Consequently, Pakistan floated a Eurobond and Sukuk for a cumulative $2.5 billion in December 2017. It has also borrowed foreign commercial loans twice from the Industrial and Commercial Bank of China (ICBC)– the government contracted the last loan in January at a rate in the range of 4.5%.
China was the single largest lender that gave a total of $1.6 billion, which was equal to one-fourth of the total foreign loans Pakistan has received in the last seven months.
The loans are obtained to stop the downward slide of the official foreign currency reserves that currently stand at $11.44 billion.
In terms of source, sovereign bonds were the single largest source of funds after Islamabad raised $2.5 billion in December.
Islamabad decided not to issue international bonds after global rates spiked, reported Bloomberg.