Heavy borrowings: Reserves set to rise to $21b for first time

ISLAMABAD – Pakistan’s foreign exchange reserves will increase to nearly $21 billion within the next two weeks.Pakistan is expecting to receive $500 million from World Bank and $400 million from Asian Development Bank in next couple of weeks. “We are expecting that country’s reserves for the first time will reach $21 billion,” said an official of the Ministry of Finance while talking to The Nation. He further said that country would also receive $502 million from the IMF in mid December. The current reserves are enough to cover four months import. The country’s current foreign exchange reserves are $19.75 billion wherein State Bank of Pakistan’s held reserves (SBP) are $14.7 billion and $5.04 billion of commercial banks.

However, the eminent economists and opposition parties have criticized the government for taking massive loans from the international lenders to build its reserves. They warned that loans would be at a heavy cost as and when the loan became due. Critics have been accusing Finance Minister Ishaq Dar of taking very costly foreign loans with the objective of building foreign exchange reserves to meet the International Monetary Fund (IMF) target for Net International Reserves (NIR).
“The government had built its reserves largely on borrowing from the international lenders and issuing bonds in global market,” said an economist Qaiser Bengali. The government had failed to enhance its exports despite receiving GSP Plus status from the European Union, he added.
The main opposition party Pakistan Peoples Party (PPP) has also shown concerns over the government’s policies of relying on massive borrowing. “Pakistan’s net reserves are around $2 to $3 billion if we exclude the borrowing from the overall reserves,” said former Finance Minister Senator Saleem Mandviwalla, who is also chairman of Senate Standing Committee on Finance and Revenue.
On a question, he informed that he would summon the officials of the Ministry of Finance in Senate’s committee meeting to take their viewpoint on taking loans from the international lenders. Reserves built up entirely on borrowings cannot provide the foundation for a sustainable growth, especially if borrowing is being done at exorbitantly high levels of interest cost, he said.
Pakistan’s reserves had fallen to $7.58 billion in February 2014, of which SBP reserves amounted to a meager $2.70 billion and those of commercial banks amounted to $4.88 billion. However, the government had enhanced its reserves through various measures, largely taking loans and issuing bonds. The current reserves are hovering around $20 billion that would cover 4-5 months import bill of the country.

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