http://dawn.com/news/1057598/danger-to-the-economy-depleted-reserves
THE State Bank of Pakistans foreign exchange reserves are down to $3.85bn barely enough to pay the bill for another four weeks of imports on substantial debt payments and widening trade deficit. The new SBP reserves report pertains to the first week of this month and doesnt reflect the debt payments of $320m made to the IMF after Nov 7. Neither does it hint at the possible impact of another payment of $400m to be made to the global lender next week. Hence, its safe to assume that the banks reserves could deplete to just above $3bn by the end of this month.
With the IMF not scheduled to release the second tranche of $550m from its $6.6bn Extended Fund Facility loan before late next month and IFIs like the World Bank and Asian Development Bank slow in disbursing the promised budgetary support funds, chances are that the banks forex stocks could touch another low over the next several weeks. That doesnt augur well for the countrys sliding economy and currency. Many are already predicting a run on the (commercial) banks, which, in fact, has begun. The savers drew $53m from their foreign currency accounts, whose stocks had declined to $5.23bn by the end of the first week of November. It is only a matter of time when greedy speculators will jump into the fray to cause a stampede in the forex market unless the SBP and government take timely measures. Another fall in the value of the rupee, which has already lost around 8pc against the dollar since July 1, could unleash a new round of steep inflation and make the publics life more difficult.
The government had seen this coming. The external sector has been under pressure for over a year now, forcing the government to hurriedly negotiate a new IMF loan to avert the imminent balance of payments crisis. But it failed to convince the IMF to frontload the new loan and other lenders to speed up funds disbursement. Nor did it take action to discourage luxury imports barring a months ban on unnecessary, expensive gold imports to reduce the trade gap because it would hurt the wealthy. With the balance of payments crisis rebuilding, it is time the government took action to prevent legal and illegal outflow of foreign currency as well as convince the IMF and other IFIs to disburse the promised funds at the earliest to avert further economic damage.
COMMENTS: I find the "Run on the Commercial Bank" comment very interesting. I had said this very thing back in the summer of 2012
http://blogs.thenews.com.pk/blogs/2012/06/the-looming-currency-crisis/
