Boosting forex reserves: Pakistan refuses to sell $2.7b worth of gold says IMF

Published: March 29, 2014
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According to the IMF’s staff report, the State Bank of Pakistan holds over 2 million troy ounces of monetary gold, having $2.7 billion value at market rate. CREATIVE COMMONS

According to the IMF’s staff report, the State Bank of Pakistan holds over 2 million troy ounces of monetary gold, having $2.7 billion value at market rate. CREATIVE COMMONS

ISLAMABAD: 

Pakistan has refused to sell gold worth $2.7 billion, citing national security reasons, as the International Monetary Fund (IMF) pushes Islamabad to convert the precious metal into cash to build foreign currency reserves, revealed the global lender’s report on Friday.

The report, prepared by IMF’s staff led by its Washington-based Mission Chief to Islamabad Jeffrey Franks, also spills the beans on the ‘$1.5 billion gift’ to Pakistan by ‘Saudi Arabia’ – the name Prime Minister Nawaz Sharif’s government has so far refused to officially share with parliament.

According to the report, the State Bank of Pakistan (SBP) holds over 2 million troy ounces of monetary gold, having $2.7 billion value at market rate. It is not counted in gross international reserves as it is not deemed to be liquid by the SBP, says the IMF.

The IMF and Pakistan authorities discussed what steps would be needed to make gold more liquid, the report adds. “However, the (Pakistani) authorities stressed that they have no plans to sell gold and preferred existing arrangements for gold holdings for national security reasons.”

The IMF is pushing Pakistan to sell gold holdings at a time when other countries are buying the commodity as a strategic reserve. The IMF had even sold its surplus gold to India a couple of years ago.

According to analysts, one reason behind the IMF’s insistence could be the country’s inability to build official foreign currency reserves despite being in the $6.7 billion IMF arrangement.

While the IMF hinted in its report that the SBP was not aggressive in building foreign currency reserves, it disclosed that Pakistan’s central bank continued its efforts to build reserves by purchasing dollars from the market.

The SBP purchased $575 million in the last few months till March 17, the report states. The SBP purchases may help stabilise the foreign currency reserves but is considered one of the reasons behind depreciation of the local currency against the US dollar. The rupee started appreciating only after the $1.5 billion grant from Saudi Arabia.

$1.5 billion gift

While the federal government remains reluctant to officially disclose the name of the country that ‘gifted’ Pakistan $1.5 billion despite persistent demand of the opposition, the IMF report identifies it as Saudi Arabia.

A “$750 million grant recently received from Saudi Arabia” will help the Pakistan government in reducing borrowings from the SBP for budget financing, said the IMF.

“Reserve accumulation was also aided by an additional inflow of $750 million from Saudi Arabia,” according to Memorandum of Economic and Financial Policies (MEFP), which is attached with the report and is jointly prepared by Pakistan and the IMF.

In a footnote to the MEFP, Pakistan told the IMF that it received an initial inflow of $750 million on February 19, indicating that it would receive more money.

Strong growth forecast

The IMF confirmed its recent forecast of 3.1 per cent growth this year, which was revised up from an earlier 2.8 per cent. “The overall economic situation in Pakistan is gradually improving,” said Jeffrey Franks.

“That 3.1 per cent may still be a bit on the conservative side, so we see indicators of growth that are relatively strong considering the fiscal adjustment that has taken place,” he told reporters on a conference call.

For the 2014-15 fiscal year, the IMF expected Pakistan’s growth to accelerate to around 3.7 per cent.

The IMF report said the growth was boosted by a stronger manufacturing industry thanks to an easing of Pakistan’s chronic electricity shortages, despite weaknesses in agriculture.

It also said that Prime Minister Nawaz Sharif’s government, despite its commitment to IMF-backed reforms, faced ‘strong’ political resistance to certain structural measures.

Published in The Express Tribune, March 29th, 2014.

Reader Comments (40)

  • desi
    Mar 29, 2014 - 2:14AM

    Good!

    Recommend

  • Mar 29, 2014 - 2:35AM

    Good decision.Recommend

  • Asad
    Mar 29, 2014 - 2:39AM

    I don’t know much about economy but I read somewhere that since the dollar is depreciating almost everywhere especially in Asia, economies like China & Germany are moving towards to accumulating more gold as reserve and for that reason I think the government is right. The dollar may fluctuate and is definitely going to depreciate in the coming 10-15 years therefore it wise to have these precious metals….

    Recommend

  • optimist
    Mar 29, 2014 - 3:24AM

    IMF gave advice to Swaziland to sell its wheat reservers and they had famine that year!

    Recommend

  • Asad Khan
    Mar 29, 2014 - 4:24AM

    Hands Off IMF

    Pak will not sell an ounce of Gold. We know your agenda, we know what happened to Ukraine’s Gold while there was poltical turmoil.

    If this Govt sell Gold on IMF directives. Military will cretainly takeover.

    regards,Recommend

  • golden
    Mar 29, 2014 - 5:18AM

    “the State Bank of Pakistan (SBP) holds over 2 million troy ounces of monetary gold, having $2.7 billion value at market rate.”

    Does it actually hold the physical gold or it has IOUs from the USA for it? Usually central banks don’t actually hold gold. The gold is kept in the USA or UK and the third world central banks have IOUs from those countries’ central banks.

    Recommend

  • Raja
    Mar 29, 2014 - 6:26AM

    Good News after some time Pakistan is heading towards the right direction. Good news is that there is expected improvement in future and not that the growth solely relies on Grants.

    Recommend

  • sall90
    Mar 29, 2014 - 7:06AM

    Pak needs to get out of IMF traps like Venezuela did. This organization will consume the country inside out.

    Recommend

  • Dravidian
    Mar 29, 2014 - 8:35AM

    hehe, Pakistanis dont have a clue about what is happening.

    Recommend

  • umar
    Mar 29, 2014 - 8:49AM

    Imf pushing Pakistan to sell just so other high stakers can buy it. By selling it, market value of rupee will decrease. Good job Pakistan by not selling it.

    Recommend

  • Pakistan Jindabad
    Mar 29, 2014 - 9:32AM

    We should not sell our gold reserves it will be very bad for our countries Image…India has $300 billion forex reserves which is more than the the whole economy of pakistan…..at least we should learn from Bangladesh if not India…Bangladesh going to get its Metro train soon…

    Recommend

  • Rohit
    Mar 29, 2014 - 9:45AM

    So what’s new? The IMF gives bad advice, which must be prudently rejected.

    Recommend

  • loot Maar
    Mar 29, 2014 - 11:18AM

    Probably the gold is already looted.

    Recommend

  • Sehyr
    Mar 29, 2014 - 11:32AM

    Let me get this straight … IMF wanted Pakistan to sell its gold reserves (of rapidly increasing value) to boost its paper currency dollar reserves (of rapidly declining value)? Thanks but no thanks. Rightly refused by Pakistan.

    Recommend

  • Ajab Khan Baloch
    Mar 29, 2014 - 1:34PM

    Dont sell gold,what will poor jewellers do

    Just seek information about undeclared assets held overseas by Pakistanis and this government by taxing them according to law will get about $60 billionRecommend

  • Golden
    Mar 29, 2014 - 1:51PM

    @Raja:
    How do you figure? Nothing has changed on the ground. Energy sector is still a mess. Privatization has gone nowhere. In fact they’ve just pumped more tax payer’s money into PIA. PTCL receipts have yet to be realized. 3G auction is going to be paid for in rupees so no chance of getting dollars there.

    @Sehyr:
    Actually gold is the one that is going to be declining rapidly once the Fed starts raising interest rates.

    @sall90:
    Have you seen the state of Venezuela? You seem to be very poorly informed.Recommend

  • Parvez
    Mar 29, 2014 - 3:00PM

    Have we refused because its the right thing to do…….or have we refused because we have no gold reserves.Recommend

  • Aam Aadmi
    Mar 29, 2014 - 3:47PM

    @loot Maar: despite all negative venom spewed by various pseudo intellectuals Pakistan is on the right track towards economic development.Recommend

  • i.J
    Mar 29, 2014 - 3:49PM

    Gold is something which has physical value, no body can refuse the actual value. And currency note is no more than just a piece of Paper, its totally controlled by the systems. Good Decision by govt. Pak. http://www.columnpk.com/andhay-gungay-aur-behray-by-orya-maqbool-jan/ Recommend

  • Asad Khan
    Mar 29, 2014 - 3:54PM

    @Golden:

    Actually gold is the one that is going to be declining rapidly once the Fed starts raising interest rates.

    Seriously, Are you joking?

    Fed can not even start tampering the mess that it had already created let alone start increase interest rates…. Friend. And if it does increase interest rates at mere half a percent, US charade of hoax stats & lied will crumble.

    First & foremost try to even put a borrowing limit for budget deficit get through Congress and then start to think about raising rates. (which will eventually happened by the Market Forces but at the times West / USA will be in taters).

    Sorry, but West lost this final round.

    regards,Recommend

  • Strategic Asset
    Mar 29, 2014 - 4:12PM

    @Parvez: You make an important point.

    Bear in mind gold reserve is a self-reported figure by the central bank of a country, in this case SBP. Having not come across any purchases in recent memory, there is no telling what the reality is. Also with murky gifts like the recent $1.5B, it may very well be gold that was proffered in exchange.Recommend

  • unbelievable
    Mar 29, 2014 - 4:34PM

    Gold is probably owned by Saudi Arabia … do you really think they just gave you $1.5 Billion?Recommend

  • vaqas
    Mar 29, 2014 - 6:38PM

    The fact that this made it to the news is very disturbing indeed. What it means is that it is being seriously contemplated to sell the gold, for one reason or the other. I hope saner voices prevail and we hold back any worth that is left in our monetary situation.Recommend

  • A2Z
    Mar 29, 2014 - 6:42PM

    Gold is one of the most liquid asset. Why SBP regard it as not liquid asset?Recommend

  • Akbar Khan
    Mar 29, 2014 - 10:39PM

    Thanks you IMF and Media for bringing Gold Reserves to Pakistani Politicians (Especially Zardari and his cronies) Attention.Recommend

  • shzeeez
    Mar 30, 2014 - 12:18AM

    @Dravidian:
    Pakistan knows whats going on in the world… it only not on the media. India had to pledge its gold in the 90s to the IMF to get a lifeline before mohan decided to end the license raj

    Recommend

  • iJ
    Mar 30, 2014 - 4:00AM
  • jaybee
    Mar 30, 2014 - 4:12AM

    Is this a newspaper or a tabloid? The IMF report had a lot of things to say. For example…progress on growth, reserves buildup, program remaining on target, structural reforms underway…..and you choose to mention that Pakistan wont sell gold? That is extremely misleading. IMF report makes no mention of Pakistan wanting to sell gold or IMF asking Pakistan to do so. It is just a footnote and there are ways to make gold liquid, e.g gold swaps, gold backed financing etc.

    Tell me admin, when the same IMF report says that multilateral flows of over a billion dollars remain on target for this fiscal year as well as 3G and privatization, why would IMF want Pakistan to sell gold? To take reserves higher than even the $18bln cap we hit in 2011? Is there any journalistic ethics here in the slightiest??

    Recommend

  • Dear IJ
    Mar 30, 2014 - 5:05AM

    @i.J: Importance of Gold Currency by Orya Maqbool Jaan, Probably he talking about Murabitum Movement
    http://www.columnpk.com/jeet-hamara-muqaddar-hai-by-orya-maqbool-jan/Recommend

  • Blitzer
    Mar 30, 2014 - 7:48AM

    If the SBP actually has the 2 million Troy Ounces (approximately 62.2 metric tonnes) of Gold in its reserves here in Pakistan, then that’s a good omen for the Pakistani economy. Let’s just hope that the previous governments have not looted it all and stored it in their personal vaults in Switzerland, US or elsewhere. A comprehensive audit of all state-owned gold would be a good idea.

    Recommend

  • Naresh
    Mar 31, 2014 - 2:17AM

    @Blitzer: If the SBP actually has the 2 million Troy Ounces (approximately 62.2 metric tonnes) of Gold in its reserves here in Pakistan, then that’s a good omen for the Pakistani economy. Let’s just hope that the previous governments have not looted it all and stored it in their personal vaults in Switzerland, US or elsewhere. A comprehensive audit of all state-owned gold would be a good idea.
    .
    Please check on the State Bank of Pakistan Website. Seemingly the Gold is already “swapped”!
    .
    Cheers

    Recommend

  • Naresh
    Mar 31, 2014 - 2:17AM

    @Blitzer: If the SBP actually has the 2 million Troy Ounces (approximately 62.2 metric tonnes) of Gold in its reserves here in Pakistan, then that’s a good omen for the Pakistani economy. Let’s just hope that the previous governments have not looted it all and stored it in their personal vaults in Switzerland, US or elsewhere. A comprehensive audit of all state-owned gold would be a good idea.
    .
    Please check on the State Bank of Pakistan Website. Seemingly the Gold is already “swapped”!
    .
    Cheers

    Recommend

  • jawad
    Apr 4, 2014 - 3:36PM

    I can see it clearly now, how desperate the US is, dont forget the crises in cyprus, they took the gold and sold it, then now ukraine they took it, now they are trying with pakistan?, pakistan did the smartest thing, but realy they cant sell it, we all know the riots will happen once they sell and inflation rises. US is desperate for the survival of the dollar

    Recommend

  • vigor
    Apr 4, 2014 - 6:44PM

    @unbelievable:
    There are many rumours that Saudis have bought a nuke from Pakistan. They cost about $1.5 billion.

    Recommend

  • Peter Jennings
    Apr 5, 2014 - 5:08AM

    Makes sense to keep the gold, especially if you want future dealings with the bric countries.
    The dollar’s lost its shine and the brics ain’t gunna wanna takem.

    Recommend

  • Macray
    Apr 5, 2014 - 3:59PM

    @Asad: Not sure that Germany is accumulating any Gold. This would be anti dollar and according to Edward Snowden, the German Government is in bed with the US.

    Recommend

  • Macray
    Apr 5, 2014 - 4:03PM

    @golden: If they hold it in the UK or US, they no longer have it.

    Recommend

  • Darkuslight
    Apr 6, 2014 - 8:17PM

    Firstly this sounds like an act of desparation from the IMF. Secondly, seems like Saudi Arabia has found an indirect way of dumping the US dollar whilst fostering relations with Pakistan. – A gift indeed.

    Recommend

  • AI
    Apr 8, 2014 - 3:26AM

    Good!

    Recommend

  • Economist
    Apr 15, 2014 - 6:05PM

    Well Pakistan is keeping Gold as Stretigic Reserves.. Thats good..
    Now matter is that we need to double our spendings on Education,Health and to develop Economic and Energy Infrastructure to servive and sustain growth..for that we dont have any extra investment coming.. Willingly or not,we must cut down our millitary spending for atleast next 5 years to get a cusion. and sadly Politicians dont have the courage to cut millitary spendings..
    Honestly we must learn from Bengladesh(Seperated from Pakistan but) has $20.03 Bn cash reserve. while we have only 7.6$ Bn as of Feb 2014.Recommend

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