Daily Times

Strictly speaking, the foreign exchange reserves should only include foreign bank notes, foreign bank deposits, foreign treasury bills as well as short and long term foreign government securities. However, the term in popular usage also adds gold reserves, special drawing rights (SDRs) and International Monetary Fund (IMF) reserve positions.

Official international reserves assets allow the central bank of the country to purchase the domestic currency, which is regarded as a liability for the central bank. The quality of foreign reserves changes when the central bank implements monetary policy, the exchange rate regime and other factors.

The central bank implementing the   fixed exchange rate policy may change the rate upward or downward depending on some pressing requirements and demands. As such, the monetary policy of the country has to be adjusted to ensure it is compatible with that of the country.

In generally understandable terms, the foreign exchange reserves of the country play an important role in its external trade which in other words are also called imports and exports

The country imports items essentially required for varying purposes and meeting domestic requirements of the people such as petroleum products etc from different countries around the world. Payments for these imports are supposedly made in US dollars lying in the foreign exchange reserves. Likewise, the country earns foreign exchange in dollars by exporting goods produced and manufactured in it and required by one or the other foreign country.  Difference in the imports and exports is generally described as balance of trade and it can either be positive or negative in favour or against the country depending on the circumstances. In simple words, if a country imports more than what it is exporting then the balance is obviously in the negative in varying terms. Trade relations between the friendly Ecountries of the region or even beyond greatly contributing in measuring the existing relations and steps are continuously taken at the appropriate level by each country to minimizing the negative balance of trade by further boosting its exports  in accordance with the requirements forits produced and manufactured products and goods by the other country.al terms, its foreign exchange reserves remain more or less dwindling due to various reasons and factors.

As stated above, foreign exchange reserves , which are maintained by the State Bank of Pakistan and also by other duly authorized banks,  are built through earnings by way of exports as well as remittances sent home by thousands of Pakistani expatriates residing and working in different countries around the world and also by securing foreign loans from friendly countries or international financial institutions like IMF, World Bank and Asian Development Bank etc for meeting the costs of the imports being made. Pakistan’s balance of trade with a number of foreign countries usually remain in the negative, which is obviously a matter of grave concern, for the federal government and also the people at large. We not only import items essentially required for meeting pressing domestic requirements  but also large number of luxury items from foreign countries which as such is something counter-productive. We can do without these luxury items but not essentially required items like petroleum products, edible oils, medicines etc. In simple words, we produce much less and consume much more and this puts extraordinaryly high pressure on the foreign exchange reserves of the country.

During the last few years, Pakistan’s exports have not been picking up and as such recording negative growth. The main reason for declining trends in the exports, according to the official sources, has been global slowdown more or less. But now that the global economy is getting back on the track of recovery, Pakistan’s exports are also showing upward trend are increasing gradually and the negative effects have started bottoming out.

Previous government of PML (N) had relied mostly in borrowing loans from international financial institutions and friendly countries to build up foreign exchange reserves and financing its ever-increasing expenditures. It had also announced Rs 180 billion export package for boosting country’s exports in January 2017

On the other hand, Pakistan’s balance of payments has remained under stress due to rising imports of capital equipment and fuel. The remarkable growth in exports earnings and remittances inflows were somehow not sufficient enough to overcome the current account deficit gap.

Firstly, a look at what Pakistan has been and is importing from different countries around the world over the past few years.

Our major 16 imports are chemicals; drugs and medicines; dyes and colours; chemical fertilizers; electrical goods; machinery (non-electrical); transport equipments; paper, board and stationary ; tea; sugar refined; art silk yarn; iron, steel and manufactures thereof; nonferrous metals; petroleum and products; edible oils; grains, pulses and flours besides other imports.

Country’s imports were worth on the whole Rs 3455287 million in 2010-11 which increased to Rs 4644152 million in 2014-15  and further to Rs 5540921 million in 2016-17 and to Rs 36542290  million in first seven months of July to January  2017-18.

On the exports side, Pakistan is exporting 24 major items including rice; fish and fish preparations; fruits; wheat; sugar, meat and meat preparations; raw cotton; cotton yarn; cotton fabrics; hosiery knitwear; bed-wear, towels, readymade garments, art silk and synthetic  textiles; carpets, carpeting rugs and mats; sports goods excluding toys; leather excluding  reptile leather tanned; leather manufactures; foot wear; medical and surgical  instruments ;chemicals and pharmaceuticals; engineering goods;  jewellery;  cement and cement products and other items.

Pakistan’s exports on the whole were worth Rs 1617458 million in 2009-10 which had substantially increased to 2583463 million in 2013-14, the highest figures for 10 years, and then started declining to Rs 2397513 million in 2014-15 to Rs 2138186 million in 2016-17 million and to Rs 137997 million provisional figures for July 2017 to January 2018.

As per the Economic Survey of Pakistan 201-18, Pakistan’s foreign exchange reserves in 2016, were the highest and in 2000, lowest in a 17 year period.

Foreign exchange reserves keep fluctuating as well as dwindling with inflows of foreign loans from friendly countries and international financial institutions and workers remittances and due to repayment of foreign loans and interest on the foreign loans.

Foreign exchange reserves should be enough for meeting country’s three months imports.According to the latest reports as of first week of October 2018, Pakistan’s foreign exchange reserves stood quite alarmingly around 8 billion US dollars being the lowest in almost two decades.

As for workers remittances are concerned, these amounted to 11200.97 million US dollars in 2010-11, 18720.00 million US dollars in 2014-15, 19351.40 million US dollars in 2016-17 and 12833.60 million US dollars in 2017-18 (provisionally).

Previous government of PML (N) had relied mostly in borrowing loans from international financial institutions and friendly countries to build up foreign exchange reserves and financing its ever-increasing expenditures. It had also announced Rs 180 billion export package for boosting country’s exports in January 2017, and also promised to provide all possible incentives to the exporters. This had brought about turn around in country’s exports to some extent but reported delays in the provision of assured and promised incentives obstructed the much desired and expected high jump in the country’s exports to minimize the mounting gap between the imports and exports and widening of the trade balance in the negative.

Present government of Pakistan Tehrik-e-Insaaf  headed by Prime Minister Imran Khan has just assumed power in August 2018 and is all determined as well as committed to take all possible steps and measures for bridging the mounting gaps between the exports and imports,  urge the Pakistani expatriates to send their hard earned money back home through proper official channels to duly boost country’s foreign exchange reserves  and do all to facilitate the exporters to boost the exports by exploring new markets abroad in the shortest possible time.

The latest of not so appreciable but unavoidable move to approach the International Monetary Fund (IMF) for about 16 billion dollars bailout package may help the federal government is overcoming the pressing economic crisis and control debt position. But This will take time as the negotiations in this regard are to start in few weeks time and the IMF has already spelling out harsh and uncalled for conditions and demands like asking for details of all foreign debts including China’s funding of China-Pakistan Economic Corridor (CPEC) obviously under pressure from Donald Trump Administration of USA which once used to be a so-called ally of Pakistan.

No matter what the circumstances but Pakistan Government must not provide the details of all foreign loans except IMF bailout packages in the past as demanded by the IMF as this do not fall in the domain of the IMF.

The writer is Lahore-based Freelance Journalist, Columnist and retired Deputy Controller (News) Islamabad and can be reached at zahidriffat@gmail.com

Published in Daily Times, October 20^th 2018.