ISLAMABAD, Oct 1: The State Bank of Pakistan made a startling disclosure before a parliamentary committee on Tuesday that $25 million in foreign currency was illegally flowing out of the country each day from airports and that was perhaps one major reason for the recent battering of the rupee.
“About $25 million foreign exchange goes out every day from Quetta, Islamabad, Lahore and Karachi airports and we are signing an MOU with the Federal Investigation Agency to check suitcases to control this and plug holes,” SBP Governor Dr Yasin Anwar told the Senate Standing Committee on Finance.
Mr Anwar made the statement when senators raised questions about the government’s policy to restore people’s confidence in the rupee that had been losing its value for several weeks, leading to excessive dollarisation. “Even property dealers and big stores are doing business in dollars,” said Senator Haji Adeel of ANP.
At the committee meeting presided over by Senator Nasrin Jalil of MQM, Usman Saifullah Khan and Sughra Imam of PPP wanted to know the reason behind Prime Minister Nawaz Sharif’s recent meeting with Hungarian-American billionaire George Soros who they alleged was one of the leading global currency speculators and had played havoc with Southeast Asian economies in the 1990s. “We should also know who advised the prime minister for this meeting,” Senator Saifullah said.
The official response was that Mr Soros had no presence in Pakistan’s currency market but he had made some philanthropist contributions and his meeting with the prime minister was part of an interaction with leading international investors.
Senators criticised the government’s priorities, particularly providing $5 billion to IPPs instead of using the amount for development of hydropower projects like Bhasha dam, Dassu dam and Neelum Jhelum project where only nominal allocations were being made.
Secretary Finance Dr Waqar Masood Khan described the perception of dollarisation as baseless and said there was no evidence to prove that payments were made in foreign currency. He said the government was working to synchronise the anti-money laundering law with anti-terrorism financing to comply with international standards.
The SBP chief said economic policies were always designed for longer-term objectives and should not be assessed on the basis of short-term problems. He said the central bank was not a law-enforcement agency which could take direct action. But, he pointed out that its vigilance on market moves had led in the past to FIA’s actions against Khanani & Kalia and Zarco Exchange.
The flight of capital has always been a major pressure on foreign exchange reserves and exchange rate but such outflows were previously estimated at between $5-10 million a day. The revelation by SBP governor puts the amount of outflows by illegal means at a staggering $750 million a month or $9 billion a year — almost equivalent to the country’s total foreign exchange reserves.
Dr Anwar did not agree that the recent steep fall in the value of the rupee to Rs110 against the dollar was a regular feature because of withdrawal from foreign currency accounts. He said the rupee had touched its lowest point only for two minutes during which only $11.3 million was misappropriated. He said he had already held a meeting with banks and punishments had been decided against banks involved in the inappropriate activity.
He said the government and the central bank were being criticised for a single day fall in the value of the rupee but the critics did not appreciate the fact that the SBP managed the foreign exchange position from March to June, when a major transition was taking place from one political government to the interim government and to a new elected government despite predictions of crisis and defaults by major commentators.
He said the government’s decision to reach a bailout agreement with the International Monetary Fund (IMF) was taken at a suitable time because of outstanding foreign repayments of $6.6 billion when major multilateral lenders like the World Bank and the Asian Development Banks had stopped extending loans for development. This led to improved market sentiments and positive comments from international rating agencies.
He said parliamentarians should not compare the handling of exchange rate issue with India where 75 per cent banks were state-run, while in Pakistan 80 per cent banking was in the private sector.
As senators criticised the economic team for allowing the IMF to take micro-level decisions, both the secretary finance and the central bank governor said daily, weekly and monthly reporting of economic data to IMF was a prerequisite for all member countries but this compliance became strict when a nation adopted to have an IMF programme which was neither unusual nor a Pakistan specific condition.
Senator Sughra Imam expressed concern that policy-makers did not offer any incentive to people for keeping rupee deposits in banks and as a result savings were being diverted to foreign currency accounts for the sake of profits because of declining exchange rate. She asked why foreign exchange deposits were not subjected to taxes like the rupee accounts. “They are earning profits just by holding dollars in their accounts.”
UNCERTAIN INFLOWS: The senators criticised the government for banking on uncertain foreign exchange inflows through auction of 3G telecom licences, PTCL proceeds from Etisalat and coalition support fund (CSF) from the US which had not materialised over the past four years.
Secretary Waqar Masood said appointments to key positions in Pakistan Telecommunication Authority had been made and soon the matter would be pushed forward. He said Finance Minister Ishaq Dar had taken up the issue of PTCL proceeds with Etisalat.
He said out of $1.4 billion CSF inflows expected this year, about $325 million would be disbursed before Oct 15, although these were earlier expected in the first quarter of the fiscal year.