Pakistan, facing acute shortfall in foreign currency reserves, has deliberated ideas to save over $30 billion a year through holding trade with friendly countries including China and the United Arab Emirates (UAE) in local currencies.
China has remained the single largest trade partner of Pakistan. Islamabad imports goods worth over $15 billion from Beijing every year. The two countries have already signed currency swap agreement, which allows trade between the two countries in local currencies.
“Therefore, there is a need to actively utilise the currency swap agreement. This will help us save $15 billion annually and contribute in building our foreign currency reserves in dollar denomination,” said the Exchange Companies Association of Pakistan (ECAP) Chairman Malik Bostan.
Bostan earlier took part in a meeting, chaired by Adviser to PM on Finance Abdul Hafeez Shaikh in Islamabad on Tuesday, to deliberate about building Pakistan’s foreign currency reserves, burdened by exorbitant import payments and debt repayment, according to a press statement issued by ECAP.
Pakistan foreign currency reserves stood at $8,057.6 million only while, its current account deficit stood at $11.586 billion in first 10-month (July-April) in current fiscal year 2019. That is, however, 27% lower than $15.864 billion in the same period last year, according to the central bank.
The other high officials who participated in the meeting included State Bank of Pakistan (SBP) Governor Dr Reza Baqir, the Federal Investigation Agency (FIA) Director General Bashir Memon, the Intelligence Bureau director general and members of the Federal Board of Revenue (FBR).
Bostan proposed that government negotiate and ink currency swap agreement with UAE as well, as Islamabad imports petroleum oil worth around $15 billion a year, mostly from Abu Dhabi. “This would also save another $15 billion a year and help building foreign exchange reserves,” he said.
He also presented the idea of banning luxury imports for at least one-year. This would save around another $15 billion in a year. The World Trade Organisation (WTO) regulations allow member countries including Pakistan to indiscriminately ban import of luxury items in a bid to fix the faltering economy.
SBP to be part of FIA raid team
Dr Abdul Hafeez Shaikh approved the proposal that officials of the SBP should be part of the Federal Investigation Agency’s (FIA) team whenever the investigation agency raids any foreign currency exchange company to check the records.
It was a long pending demand of the foreign currency exchange companies to make the SPB representatives a part of the raid team, as the SBP better knows working of the exchange firms.
“Currency dealers submit each and every currency trade record to the SBP on regular basis. In the past, some miscreants using the FIA name looted some of the exchange firms,” ECAP chairman said.
Currency dealers supply $30m to govt
Bostan said the increase in supply of dollars in open market has helped currency dealers to provide around $30 million to the government in the past six days. “We aim at providing a total of $100 million to the government through selling the foreign currency in the inter-bank market,” he said.
He said the exchange companies have brought $13 billion to Pakistan since 2010. They provided $1.2 billion to the current PTI government through banking channels.
He said they are capable enough to help bring more and more dollars into Pakistan if the government lets them sign agreement with foreign exchange firms.
“We are bringing dollars through only five foreign exchange firms, while banks in Pakistan are attracting workers remittances through 170 such foreign firms,” he told the meeting.
He said they are providing around $1.5 billion to the government through banking channels and if they are allowed to increase dealing with more foreign firms then they have the capacity to supply $3-4 billion per year to the government.
He told the meeting that the government has allowed people travelling abroad to carry $10,000 each and urged them to cut the amount to $5,000 to avoid capital flight. He also urged the meeting to check smuggling of foreign currencies at Afghanistan and Iran boarders.