$25m flows out of country daily : SBP governor

[onionkiller]

$25m flows out of country daily:
SBP governor
KHALEEQ KIANI
Updated at
2013-10-02 14:05:48
Share
Email
23 Comment(s)
Print
ISLAMABAD: The State Bank of
Pakistan made a startling
disclosure before a parliamentary
committee on Tuesday that $25
million in foreign currency was
illegally flowing out of the country
each day from airports and that
was perhaps one major reason for
the recent battering of the rupee.
“About $25 million foreign exchange
goes out every day from Quetta,
Islamabad, Lahore and Karachi
airports and we are signing an MOU
with the Federal Investigation
Agency to check suitcases to control
this and plug holes,” SBP Governor
Dr Yasin Anwar told the Senate
Standing Committee on Finance.
Mr Anwar made the statement when
senators raised questions about the
government’s policy to restore
people’s confidence in the rupee
that had been losing its value for
several weeks, leading to excessive
dollarisation. “Even property dealers
and big stores are doing business in
dollars,” said Senator Haji Adeel of
ANP.
At the committee meeting presided
over by Senator Nasrin Jalil of MQM,
Usman Saifullah Khan and Sughra
Imam of PPP wanted to know the
reason behind Prime Minister Nawaz
Sharif’s recent meeting with
Hungarian-American billionaire
George Soros who they alleged was
one of the leading global currency
speculators and had played havoc
with Southeast Asian economies in
the 1990s. “We should also know
who advised the prime minister for
this meeting,” Senator Saifullah said.
The official response was that Mr
Soros had no presence in Pakistan’s
currency market but he had made
some philanthropist contributions
and his meeting with the prime
minister was part of an interaction
with leading international investors.
Senators criticised the government’s
priorities, particularly providing $5
billion to IPPs instead of using the
amount for development of
hydropower projects like Bhasha
dam, Dassu dam and Neelum Jhelum
project where only nominal
allocations were being made.
Secretary Finance Dr Waqar Masood
Khan described the perception of
dollarisation as baseless and said
there was no evidence to prove that
payments were made in foreign
currency. He said the government
was working to synchronise the anti-
money laundering law with anti-
terrorism financing to comply with
international standards.
The SBP chief said economic policies
were always designed for longer-term
objectives and should not be
assessed on the basis of short-term
problems. He said the central bank
was not a law-enforcement agency
which could take direct action. But,
he pointed out that its vigilance on
market moves had led in the past to
FIA’s actions against Khanani & Kalia
and Zarco Exchange.
The flight of capital has always been
a major pressure on foreign
exchange reserves and exchange rate
but such outflows were previously
estimated at between $5-10 million
a day. The revelation by SBP
governor puts the amount of
outflows by illegal means at a
staggering $750 million a month or
$9 billion a year — almost
equivalent to the country’s total
foreign exchange reserves.
Dr Anwar did not agree that the
recent steep fall in the value of the
rupee to Rs110 against the dollar
was a regular feature because of
withdrawal from foreign currency
accounts. He said the rupee had
touched its lowest point only for two
minutes during which only $11.3
million was misappropriated. He said
he had already held a meeting with
banks and punishments had been
decided against banks involved in
the inappropriate activity.
He said the government and the
central bank were being criticised for
a single day fall in the value of the
rupee but the critics did not
appreciate the fact that the SBP
managed the foreign exchange
position from March to June, when a
major transition was taking place
from one political government to the
interim government and to a new
elected government despite
predictions of crisis and defaults by
major commentators.
He said the government’s decision to
reach a bailout agreement with the
International Monetary Fund (IMF)
was taken at a suitable time because
of outstanding foreign repayments of
$6.6 billion when major multilateral
lenders like the World Bank and the
Asian Development Banks had
stopped extending loans for
development. This led to improved
market sentiments and positive
comments from international rating
agencies.
He said parliamentarians should not
compare the handling of exchange
rate issue with India where 75 per
cent banks were state-run, while in
Pakistan 80 per cent banking was in
the private sector.
As senators criticised the economic
team for allowing the IMF to take
micro-level decisions, both the
secretary finance and the central
bank governor said daily, weekly and
monthly reporting of economic data
to IMF was a prerequisite for all
member countries but this
compliance became strict when a
nation adopted to have an IMF
programme which was neither
unusual nor a Pakistan specific
condition.
Senator Sughra Imam expressed
concern that policy-makers did not
offer any incentive to people for
keeping rupee deposits in banks and
as a result savings were being
diverted to foreign currency accounts
for the sake of profits because of
declining exchange rate. She asked
why foreign exchange deposits were
not subjected to taxes like the rupee
accounts. “They are earning profits
just by holding dollars in their
accounts.”
UNCERTAIN INFLOWS: The senators
criticised the government for
banking on uncertain foreign
exchange inflows through auction of
3G telecom licences, PTCL proceeds
from Etisalat and coalition support
fund (CSF) from the US which had
not materialised over the past four
years.
Secretary Waqar Masood said
appointments to key positions in
Pakistan Telecommunication
Authority had been made and soon
the matter would be pushed
forward. He said Finance Minister
Ishaq Dar had taken up the issue of
PTCL proceeds with Etisalat.
He said out of $1.4 billion CSF
inflows expected this year, about $
325 million would be disbursed
before Oct 15, although these were
earlier expected in the first quarter
of the fiscal year.
RELATED STORIES

source. dawn.com

 

[niaz]

Quote

State Banks Charter 1956.

An Act To Provide For The Establishment
Of The State Bank Of Pakistan

WHEREAS it is necessary to provide for the constitution of a State Bank to regulate the
monetary and credit system of Pakistan and to foster its growth in the best national interests
with a view to securing monetary stability and fuller utilisation of the country’s productive
resources:

http://www.ahmedandqazi.com/actsand...yAuthoritiesLaws/stateBankPakistanAct1956.pdf

Unquote.

I don’t get what is the motive behind this article? Is the Hon Governor against that IMF loan? If what he says is true, what is Mr Yaseen Anwar doing about it?

It is the State Banks job to stabilize the economy and advise GOP on the fiscal policy. We have seen time and again that State Bank of Pakistan has failed to the job it is supposed to do and its Governors have been towing the line of whosoever has been in Power in Pakistan.
In my life time except the first 2 Governors ( late Mr Zahid Hussein & late Mr Abdul Kadir ); Dr Ishrat Hussein was the only one who was big enough to fill this position.

For the record, here is a brief history of the Pakistan Rupee value.

At the time of partition Indian & Pakistan Rupees were equal and tied to the UK £. In 1955 rupees was devalued and fixed at 1$ = 4.76 Pk Rupees same as for India. Even though Rupee was indirectly devalued thru Bonus Voucher Scheme touching Rs 25 to one dollar in the open market; after the expensive 1965 war Pakistan did not devalue the Rupee where as India did in 1966. This made Pakistani goods uncompetitive.

In May 1972, Under Ghulam Ishaq Khan heading the State Bank, Pakistan implemented a major exchange reform and declared a new par value of Rs.10 to the United States dollar, which implied a 130 per cent nominal devaluation and 62 per cent real devaluation. After a small appreciation in 1974, the rupee was maintained at Rs. 9.9 to the United States dollar for the next nine years.

Domestic inflation relative to foreign inflation caused loss of competitiveness. Although the State Bank leaders were aware of a loss of competitiveness, they were unwilling to devalue the nominal rate for almost a decade.

Faced with a severe balance of payments situation, Pakistan in January 1982 finally abandoned the fixed peg with the United States dollar and pegged to an undisclosed currency basket with the dollar retained as the intervention currency. The rupee was depreciated by nearly 20 per cent in 1982-1983 and a further 11 per cent in 1983-84.

A substantial improvement was recorded in the current account especially on workers’ remittances (accounting for almost the same as the entire merchandise exports of Pakistan) which rose by 30 per cent over the 1981-82 level. The nominal depreciation slowed in 1984-85, with slight real rate appreciation. In 1985-86, the nominal exchange-rate was allowed to depreciate at a more accelerated pace.

After Nawaz Sharif & his Finance Minister Sartaj Aziz froze foreign currency deposits ( after secretly transferring about $40-million of their own money during the night) on May 28, 1998; Rupee depreciated by 16% in one day. In April 2008 Dollar was equal to Rs 64 but by October it had reached close to 80.

Pak Rupee value in recent times is noted below:

April 1998 1$ = 44.30, 30-Jun-1999, 1$ = Rs 51.4, 30-May-2001 1$ = Rs 63,
30-May-2002 1$ = Rs60.5, 30-May-2005 1$ = Rs 59.7, 30-May-2007 1$ = Rs 60.83,
30-May-2008 1$ = Rs 67, 30-Apr-2009 1$ = Rs 80.45, Now 1$ = Rs 106.

 

[onionkiller]

self dlt

 

[Abdussamad]

The current governor has always been against the IMF programme. It was mentioned a few times on the business pages of the tribune but most recently in this article:

Misreading reserves outlook: SBP chief misled PPP govt, stalled IMF deal – The Express Tribune

The other thing is that Yaseen Anwar is a political appointee. The previous governor was independent minded so they replaced him with this guy.

The reason you see him say these things now is that this is the way things get done in Pakistan. When you are asked about something you put the blame on others. Take the forex dealers association for example. They were asked to explain the rupee devaluation in the open market and they blamed it on gold smuggling to india. The govt. banned gold imports but it didn't make any difference. The rupee continued to depreciate. The SBP is merely taking a leaf out of the forex dealers' book.

The truth is that you have high inflation, imports that are double exports and little foreign aid or investment. We've only survived this long on the back of remittances. So the rupee was bound to devalue and it will continue to fall. But it is easier to blame this on smugglers than try to explain economics to the ignorant masses.