Govt may pull out $2bn investment in US

[Naveed Yaseen]

By Mehtab Haider
ISLAMABAD: The appalling economic situation has forced the country to actively consider the option of withdrawing over $2 billion foreign currency reserves parked in US Treasury and its capital market, The News has learnt.

In the wake of mounting pressure on foreign exchange reserves, they dipped to its lowest in recent years and stood at around $4 billion, in real terms, keeping in view forward liabilities.

During the previous regime, the government hired fund managers for management of the reserves, who parked money in capital markets, bonds as well as US Treasury.

As total reserves held by the central bank now stand at $4 billion, which can fulfill requirements of one month of imports, the situation has put Pakistan in the ‘danger zone’ regarding its external obligations. In case of non-availability of Saudi oil facility worth $5 to $6 billion, Pakistan may face the threat of default, leaving no other option but to seek the International Monetary Fund’s bailout package to address its balance of payments (BoP) woes.

Unskilled handling of foreign reserves is quite apparent as Pakistan is getting a meagre 1 to 1.5 per cent return on its parked money while on the other side it has floated eurobonds on which it is paying a much higher rate in the range of 7 to 10 per cent. “Pakistan is a net loser in this forex game,” an official commented.

At a time when reserves are depleting rapidly in the range of $250 to $330 million weekly, the finance ministry sources do not rule out the possibility of withdrawal of investment in the US Treasury and other areas.

When the State Bank of Pakistan’s spokesman Syed Wasimuddin was contacted on phone, he asked this correspondent to send questions to his email address and promised to give the central bank’s comments. After several hours, he was reminded regarding the queries but he refused to give any reply to these questions. “No, these cannot be replied,” he categorically said.

Among the questions, the SBP was asked how much foreign currency reserves were parked with the fund managers for the medium term or fixed term.

The second question was whether the SBP was considering any move to withdraw these reserves from the fund managers keeping in view the existing tight situation.

In the third question, the SBP was asked if not when will Islamabad under agreed terms and conditions be able to pull out these reserves after completion of the fixed period.

“The handling of foreign currency reserves poses a big question mark,” an official source said and conceded much could be done to better manage the reserves. However, sources explained that Pakistan’s risk rating was high, resulting in payment of high interest rates on its borrowings and getting less on its investments in destinations like the US where the risk was minimum.

Pakistan is getting less on its $2 billion investment because the fund managers were advised by relevant authorities to invest the amount in ‘AAA’ rated countries. “We have minimised our risks, which resulted in much less dividend,” an official said.

In background discussions, the sources alleged that the finance ministry was never taken into confidence on the issue of forex reserves’ management by the high-ups of the State Bank despite repeated requests by the ministry in that regard in the last few years.

However, according to SBP data released on Thursday, total liquid foreign reserves held by the country stood at $9.129 billion on August 30.

The break-up shows that foreign reserves held by the State Bank stood at $5.759 billion while net reserves held by banks (other than SBP) amounted to $3.370 billion.

http://www.thenews.com.pk/daily_detail.asp?id=134050