Pakistan withdraws $1.7bn invested in US capital market

[Naveed Yaseen]

By Mehtab Haider
ISLAMABAD: Pakistan has withdrawn around $1.7 billion invested with selected fund managers out of total $3.2 billion largely put into various tools of the US Treasury and the US capital market, The News has learnt.

Now around $1.5 billion foreign currency reserves are lying with the fund managers, market sources said and added that the reserves management had raised several questions in the past during the tenure of Musharraf-Aziz regime because the country got minimum return compared to giving huge profits to those foreign investors who purchased Pakistani papers such as eurobond and others.

However, the State Bank of Pakistan confirms that it did not pay any penalty for withdrawal of its investment funds.“Anticipating such a situation, the SBP had included terminal clauses in all investment management agreements. Therefore, the central bank can call back funds from fund managers without any notice period and without incurring any penalty. All transactions are conducted on prevailing market prices,” the SBP categorically said.

In a written reply, the SBP also confirmed that during the last four fiscal years, $1.73 billion has been accumulated through a focused investment strategy that contributed as investment income on the part of forex reserves held by the SBP.

“These returns were achieved on an overall average investment portfolio of $9.71bn during the last four years, despite holding a conservative and risk adverse portfolio in turbulent global markets,” it added.

However, sources say that the State Bank had decided to withdraw its foreign currency reserves from the US Treasury (treasury bonds, treasury bills and treasury notes) and the US capital market before the International Monetary Fund’s loan of $7.6 billion under a standby arrangement at a time when foreign currency reserves were depleting rapidly and the country was in dire need to meet its import requirements and other obligations.

“We cannot confirm any figure related to withdrawal of foreign currency reserves from selected fund managers,” SBP spokesman Syed Wasimuddin said when asked in that regard on telephone on Monday after receiving his written reply.

This correspondent also sent written questions to spokesman of the SBP, which were replied largely. The written reply neither confirmed nor denied the withdrawal figure of $1.7 billion from fund managers

During the previous Musharraf regime in 2004, the government selected fund managers for reserves management and ultimately they parked this money by investing into capital market, bonds as well as US Treasury. This correspondent sent three questions to SBP for getting official response reproduced here without any change.

Q-1: Has the SBP withdrawn $1.7 billion from the fund managers out of total $3.2 billion and currently there is only $1.5 billion remaining with these fund managers (such as the Citibank, ABN Amro, Deutsche Bank etc)?

A-1: SBP had engaged services of few reputed fund managers since 2004, to manage a portion of its foreign exchange reserve as part of an overall Reserve Management Strategy duly approved by the Central Board. It is a regular part of the reserve management activity that investments are made and funds withdrawn as determined by investment scenario and liquidity needs requirements. Therefore, it wouldn’t be pertinent to state specifically with which managers we conduct such operations at any point in time. However, it wouldn’t be out of place to mention that of the institutions’ listed in the above question none of them are part of our approved fund managers, though we have not exited any such relationships in the recent past.

Q-2: How much the SBP is charging from the fund managers?

A-2: SBP earns a competitive return on its investments given the investment & risk guidelines as approved by the Central Board. During the last four fiscal years, $1.73bln has been accumulated through focused investment strategy and contributed as investment income to the FX Reserves on the portion held by SBP. These returns were achieved on an overall average investment portfolio size of $9.71bln during last four years, despite holding a conservative and risk adverse portfolio in turbulent global markets.

Q-3: Have we paid any amount in shape of penalty for withdrawal of our funds prior to the agreed timeframe?

A-3: As already explained above withdrawing and investing funds through fund manager is a part of reserve management activity so penalties are not charged for withdrawal of funds. Anticipating such situations SBP had included terminal clauses in all our Investment Management Agreements. Therefore SBP can call back funds from fund managers without any notice period and without incurring any additional penalty. All transactions are conducted on prevailing market prices.

http://www.thenews.com.pk/daily_detail.asp?id=153247