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‘Mystery’ of sudden rise in forex reserves yet to be unfolded

‘Mystery’ of sudden rise in forex reserves yet to be unfolded

KARACHI: Net foreign exchange reserves with State Bank of Pakistan (SBP) rose by $1.03 billion during the second and third weeks of the outgoing month which provided the much-needed vigor to strength rupee against dollar. The current drastic appreciation in rupee against the dollar is largely due to the increase in the net foreign exchange reserves with SBP. However, one wonders as to what is the real ‘source’ behind this sudden phenomenon.

Finance Ministry and Economic Affairs Division (EAD) remained tight lipped with respect to which ‘source’ has injected what amount into the Pakistan Development Fund (PDF). Finance Minister Ishaq Dar said that the country’s foreign exchange reserves improved from US $7.59 billion on February 7, to $9.37 billion on Mar 7, 2014 as a result of receipts from “what he called” multilateral and bilateral resources. He also did not disclose the source of this rise in reserves.

According to statistics updated on the SBP website, however, net foreign exchange reserves were US $2.841 billion on February 7, 2014 and rose to $3.870 billion on February 21, 2014; and in the last week of February SBP reserves further increased by $50 million to $3.921 billion. When contacted an official of EAD said that the country has not received any grant from Saudi Arabia in the current fiscal year; however a grant of $100 million was announced in September 2013 by Engineer Yousef Ibrahim al-Bassam, Vice Chairman and Managing Director, Saudi Fund for Development (SFD). Accordingly, EAD has sought projects from the Planning and Development and Reform to be submitted to Saudi Arabia against the amount.

Pakistan and Saudi Arabia signed two loan agreements on February 17, 2014 under which the latter will provide a total of around US $183 million for the import of urea fertilizer from Saudi Arabia and the construction of a hydro-power project in Chitral. Under the first agreement, Saudi Arabia will provide a credit facility of US $125 million for the import of urea from Saudi Arabia. Whereas under the second agreement, Saudi Arabia will provide an additional loan of $57.8 million for the construction of a 106 MW Golen Gol hydro-power project at River Mastuj in Chitral.