KARACHI: The State Bank shifted the entire load of oil import payment of around $10 billion to the private sector much earlier than the given deadline on pressure from the International Monetary Fund (IMF).
The central bank said on Saturday said that with effect from Dec 14, all purchases of foreign exchange related to import of crude oil will be made by banks from the inter-bank market.
The first agreement with the IMF in November 2008 emphasised that the SBP would get rid of making payment of oil import bills by February 2010.
The bank first shifted the payment of furnace oil bill from Feb 1, 2008 to the private sector, which accounted for 20 per cent of the total imports.
On July 15, the SBP instructed banks to make all purchases of foreign exchange from inter-bank market related to the import of POL products except that for crude oil.
The payment on import of crude was scheduled to be shifted to private sector from Feb 1, 2010 but the State Bank made it one and a half months earlier than the given time.
‘The IMF has asked the Pakistani negotiators to get rid of crude oil bill earlier than the schedule given in the previous agreement,’ said a high- ranking source adding that the IMF’s suggestion came in recent negotiations with the donor agency.
The SBP assured the IMF to pursue a flexible exchange rate policy. The central bank was caught in a difficult situation from the mid of 2008 when oil prices shot up and touched $147 per barrel.
This massive increased in petroleum prices siphoned off country’s reserves, which fell to just about $6.5 billion causing serious threat of balance of payment.
While it forced the country to make agreement with the IMF on emergency basis, it also compelled the SBP to take over responsibility of payment of oil import bill to save the currency from speculative attacks.
The local currency lost 23 per cent against the dollar in 2008 reflecting the grim situation of both the reserves and steep fall in value of local currency.
Demand for the greenback went high and the local currency fell to as low as Rs85 per dollar in November 2008.
However, the inflow of IMF’s first tranche of $3.1 billion supported the weak local currency as well as falling reserves.
‘The oil prices are rising once again, which means dollar demand will go higher in the inter-bank market which may help the speculative forces to benefit from the supply and demand gap,’ said Atif Ahmed, a currency dealer.
The country’s reserves have reached over $13.7 billion, with over $10 billion at State Bank while the rest is with the commercial banks.
'Now the private sector will have to arrange over $10 billion for import of all petroleum products. This is significantly a very high amount and could cause another wave of depreciation of local currency,’ said Atif.
Market experts and analysts said the continuation of inflows of dollars would help to keep the exchange rate stable, while any change in the current inflows would get negative impact from the market with rise in dollar’s demand and devaluation of local currency.
‘Export proceeds are not increasing while import is going higher. The foreign direct investment has also gone down during the current year, which reflects the future of lower inflows,’ said a banker.
The poor law and order situation in North of Pakistan and frequent terrorists attacks shattered the confidence of investors resulting into low FDI.
The State Bank reported that in the first four months of the current fiscal the FDI fell by 53 per cent to $622 million against $1.329 billion during the same period last year. Portfolio investment also witnessed outflows during the period.
Experts believe that SBP would have to intervene in the exchange market to keep a grip over exchange rate fluctuations after this decision.
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