Reserves will go past $10b by March end, govt plans

Finance ministry puts faith on success of upcoming Euro-bonds.

ISLAMABAD: As the country’s foreign currency reserves plunged to dangerously low levels of $7.6 billion, the federal government vowed to increase the reserves to $10 billion by the end of next month, a target that appears unrealistic in the backdrop of drying foreign inflows.

According to figures released by State Bank of Pakistan (SBP) on Thursday, the country’s total liquid reserves stood at $7.59 billion as of February 7, the lowest level in years. Out of the total reserves, the foreign currency reserves held by SBP dropped to $2.841 billion, the central bank said. Reserves held by commercial banks stood at $4.748 billion, according to the SBP.

Net official reserves have turned out to be negative, if the government’s liabilities on account of China currency swap, forward contracts and China deposits are subtracted from the reserves held by the SBP.

The $2.84 billion reserves are sufficient to finance only three weeks of imports, as the country’s monthly import bill rose to $4.2 billion in January.

Due to the grave situation, Finance Minister Ishaq Dar held a review meeting to find ways to improve the delicate reserves position. A meeting to review the overall economy with a focus on external financing was held at the Ministry of Finance, according to an official handout.

Dar gave instructions to accelerate the pace of efforts already being made by the Finance Division to improve the reserves position, it added.

The handout stated that the foreign exchange reserves will be increased to more than $10 billion by the end of March, 2014. It further added that the gross reserves will be increased to $16 billion by the end of December, 2014.

The government was betting on a plan to shore up its reserves by floating Euro bonds next month, the officials added. They said the government would soon launch road shows to gauge the market appetite before issuing the bond next month.

According to analysts, the government was undermining the cost that it has to pay to raise the money from the international market. The government’s expectation was that it will be able to float the bond close to premium on bonds that the Musharraf government had floated in 2007. The ten-year bond was traded at around 7% to 7.5%.

Analysts said the international investors’ perception about the country’s future roadmap will determine the premium the country will have to pay for raising the money.

The ministry said that International Financial Institutions have reposed their confidence in the government’s policies and said that the economy was now moving in the right direction.

Published in The Express Tribune, February 14^th, 2014.

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