Pakistan to invest $3.2b forex reserves

* HSBC already hired to invest $1.6 billion
Sunday, July 04, 2004

Staff Report

ISLAMABAD: Pakistan would invest $3.2 billion of its foreign exchange reserves in the international markets through foreign fund managers, Dr Ishrat Husain, governor State Bank of Pakistan (SBP) said Saturday.

Dr Husain said that the bank has signed an agreement with a consortium led by Hong Kong and Shinghai Bank for investment of $1.6 billion.

He said that another agreement is being signed soon with a consortium of international fund managers for further investment of $1.6 billion.

The governor SBP was responding to questions after holding a joint press conference with chairman of Securities and Exchange Commission of Pakistan (SECP) on margin financing Saturday.

He, however, did not disclose the name of the second fund manager saying that the deal is in the process and it would be pre-mature to name the fund manager.

Dr Hussain said that a benchmark had been worked out to secure investment from foreign exchange reserves and to earn profit.

He said the government wanted to utilise the foreign exchange reserves to enhance its foreign exchange income in future. The eight fund managers had been short-listed to invest $3.2 billion, he said.

Money changing business: To a question, he said that 52 new foreign exchange companies have started operations in the country after the abolition of a chain of money changers.

He said 375 moneychangers have ceased to operate in the country from July 1, and so far 19 A category and 33 B category forex companies, registered with the SECP, have started their business.

“It was a good omen that without any violence a majority of the money changers have converted their business into foreign exchange companies,” Dr Husain added.

He said that the capital requirement limit for the small foreign exchange companies had been reduced to Rs 2 million and their business had been confined to exchange of currency notes only. The bank would carry out the inspection and audit of the foreign exchange companies with a view to monitor their business activity, he said.

Credit for textile industry: Dr Husain said that the bank has arranged $3 billion credit for textile industry in the past few years, enabling manufacturers to expand their operations, modernize machinery to meet upcoming global challenges of quota-free textile trade from January 2005.

He said exports of textile sector would grow in future in the backdrop of this investment.

He defended SBP’s purchase of $10 billion from Dubai and said that it was imperative to save the country from default. “In 1999-2000 we approached a brethren country to obtain credit for oil purchases, but the country refused to lend the money,” he said.

He further said that the commercial banks demanded 12 percent to 15 percent mark up on lending that was not feasible and there was no option but to purchase foreign exchange from open market.

Dr Husain said that in the past three years Pakistan has retired $17 billion foreign debt and the national foreign exchange reserves have crossed $12 billion mark.

He said that rescheduling of loans from Paris Club, resumption of soft-term economic assistance by the IMF, the World Bank and the ADB, increase in exports, inflow of remittances played a key role in stabilizing forex reserves beyond $12 billion.

Four years ago Pakistan foreign exchange reserves were equal to one week’s imports, but now the reserves are at par with annual imports that is an achievement, he said.

He further said that increasing prices of flour have given boost to inflation. The government and the SBP encouraged the private sector to buy wheat with a view to end monopoly of the food departments and PASSCO, but the private parties misused this facility and resorted to hoarding of wheat and flour, leading to increase in prices, he said.

He pointed out that the federal government has decided to build up wheat stocks to one million tons that would be used to discourage hoarding and control artificial increase in flour prices.

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awesome!

Good move,
illustrates that pakistan has some economists in the government now.....

many governments does that.

however we could have seen this coming as Shaukat was once also the head of Citibanks private banking. I'm sure he'll know where to invest and how.

3.2 Billion USD will make any fund manager perform well for big incentives!

Finally the forex will start earning money too ...

i have a hsbc account

and its Hong Kong and Shinghai Banking Corperation not Hong Kong and Shinghai Bank

So ..... what do you guys think ... where would Pakistan invest this money ??