Forex reserves: Sustainability a concern

Loans comprise around 45 per cent of reserves.

KARACHI:

Foreign exchange reserves are at a record high, yet the sustainability of those reserves is a cause for concern in the medium term, analysts said on Friday.

Foreign exchange reserves rose to an all-time high of $17.95 billion for the week ended March 26, but eased to $17.31 billion in the week ended April 9.

“When you say record high forex reserves, you have to be realistic as well, as out of the reserves nearly $8 billion is the amount we have borrowed from the International Monetary Fund (IMF) and then there are other foreign loans, so we can say around 55 per cent of the reserves are Pakistan’s, the rest is on loans,” said Invest and Finance Securities Limited Director Khalid Iqbal Siddiqui.

“If one were to take the IMF reserves out of the equation, it (foreign exchange reserves position) is not that solid,” said Asian Development Bank Country Director for Pakistan Rune Stroem last week.

Forex reserves have grown steadily thanks to higher export proceeds as well as record inflow of remittances but the sustainability of both is also questionable, analysts said.

“Another factor to worry about is the increase in international oil prices which comes with a lag to Pakistan,” said Invisor Securities Limited Director Asif Qureshi.

The other factor that has supported the rise in foreign exchange reserves is remittances from overseas Pakistanis. Remittances increased by 22.37 per cent to over $8 billion in the first nine months of the 2010-11 fiscal year, and in March a record $1.05 billion was received, according to data from the State Bank of Pakistan.



Published in The Express Tribune, April 16^th, 2011.