Islamabad: Pakistan’s foreign exchange reserves have experienced a remarkable increase, surging from $2.7 billion to $11.7 billion in just two years, according to the State Bank of Pakistan (SBP). This growth was achieved without accumulating additional external public debt, as highlighted by SBP Governor Jameel Ahmed during a meeting with the Senate Standing Committee on Finance.
Foreign Reserves and Market Interventions
The SBP revealed that it had purchased $4.5 billion from the open market in the first half of the current fiscal year, contributing significantly to the reserve buildup. This achievement comes amidst efforts to stabilize Pakistan’s economy, which has faced persistent challenges with its balance of payments.
Concerns Over Dollar Outflows
However, serious concerns were raised during the Senate Panel meeting about the annual dollar outflows ranging between $600 million to $1 billion. These outflows are attributed to payments made to MasterCard and Visa for transactions involving debit and credit card usage, including fees for rupee withdrawals at ATMs.
Senator Saleem Mandviwalla, Chairman of the Senate Panel, expressed alarm over these payments, arguing that such outflows were unsustainable given the country’s economic constraints. He stated that commercial banks were collectively paying $2.5 million per week to these international card networks.
SBP’s Defense
In response, SBP officials defended the arrangement, stating that payments to MasterCard and Visa are essential for facilitating international transactions. They further clarified that local alternatives, such as PayPak, do not currently offer the same level of global interoperability.
The SBP Governor acknowledged that annual payments to MasterCard and Visa previously stood at $1.4 billion but were reduced to $800 million following revisions in the agreement. Despite this reduction, the Senate Panel insisted on exploring further cost-saving measures, including expanding the use of PayPak, which currently holds a 23% market share with 11 million debit cards in circulation.
The Role of Pakistan Remittance Initiatives
During the proceedings, the committee also examined payments made under the Pakistan Remittance Initiative (PRI). The SBP disclosed that Rs86 billion was disbursed in subsidies last fiscal year to encourage remittance inflows. These incentives play a crucial role in supporting Pakistan’s foreign exchange reserves, which remain under pressure from external repayments.
Future Challenges and Plans
Governor Jameel Ahmed also noted that Pakistan is awaiting a $3 billion deposit rollover request from the UAE, with $2 billion and $1 billion expected in separate tranches. He emphasized that the increase in reserves was genuine and achieved despite the repayment obligations that have reduced the current figure to $11.7 billion.
The Senate Panel, however, called for stricter measures to curb unnecessary dollar outflows, even hinting at legislative action if no solution is found.
This debate underscores the delicate balancing act facing Pakistan’s economic policymakers as they strive to stabilize reserves while addressing systemic inefficiencies in dollar outflows.
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