As of yesterday State Bank of Pakistan will not sell foreign exchange to banks for financing the crude oil imports. SBP had given banks a full working week to get prepared for securing funding from the international market.
The present measure has been adopted in the wake of Pakistan rupee losing 53 paisa or 0.6 per cent of its value within 4 days against the dollar as banks began to buy US dollars in advance. Bankers anticipate a further decline in the rupee value as they start financing crude oil imports. Crude imports stood at $4 billion or more than 40 per cent of the overall petroleum imports of $9.5 billion in FY09.
Pakistani bankers estimate this year’s crude imports around $3.5 billion if the global prices remain range-bound and local refineries’ output that declined eight per cent in July-November 2009 does not rebound quickly.(In July-October 2009 crude imports fell to a billion dollars from two billion dollars in a year-ago period due to reduced refineries’ production and lower international prices )
The banks in Pakistan need some $300 million per month to finance crude oil imports. The rupee depreciated a bit immediately after last announcement and it may lose some more value in next few weeks unless there are big inflows of foreign exchange.
After the talks between Pakistan and the IMF mission held in Dubai last month, the government is expecting $1.2 billion after the approval by the IMF board scheduled to meet on December 21-22.
But IMF’s Director of External Relations Department Caroline Atkinson has said discussions with Pakistan were in progress, implying that the Dubai talks were not final and that the release of the fourth trance of the $7.6 standby credit might be delayed.
Pakistani bankers also concerned that the year-end servicing of both sovereign and corporate foreign debts would keep the rupee under pressure.
Foreign debt servicing in October-December 2009 was estimated well above a billion dollars, the major share of which was paid in December. In July-September Pakistan spent $1.2 billion on foreign debt servicing despite a roll-over of $450 million.
In July 2008, the State Bank had decided to provide foreign exchange to banks for financing import of crude oil and petroleum products to keep the exchange rates stable amidst inconsistency triggered by international financial crisis and recession. But it stopped providing foreign exchange for financing of import of furnace oil from February 2009 and for that of petroleum products from July.
Now it has stopped selling foreign exchange for crude oil as well—reportedly to meet one of the conditions of the IMF standby loan—thus restoring the pre-July 2008 arrangements wherein banks were responsible for arranging foreign exchange to finance imports of both crude oil and all petroleum products.
Between February 2009 and 10 December 2009, when banks started financing of furnace oil imports on their own, the rupee has lost 6.8 per cent of its value against the US unit. A senior State Bank official remarked. “This should remove fears that the shifting of financing of crude oil imports to banks would lead to a big depreciation in the rupee value,” He also added “The rupee might lose a bit but we neither foresee a major decline in its value nor a serious inconsistency in exchange rates.”
Bankers also dispel the possibility of a speculative attack on the rupee value saying the State Bank is yet to allow forward selling of foreign exchange to importers and thus the question of manipulating exchange rates does not arise. But they say the central bank may allow it sometime next year as the IMF is believed to have raised this issue during talks with SBP authorities.