The government reached yesterday an agreement with a consortium of seven domestic and international banks to borrow $625m to boost foreign exchange reserves and stop continuous bashing of the rupee.
The reserves currently stand at $10.3bn.
“We have approved the agreement under which the banks are required to bring $625m from abroad in 10 days,” the finance ministry’s spokesman and adviser, Rana Assad Amin, said.
He said the government had sought offers from the banks about two months ago and most of them offered an interest rate of 7.77 percent over Libor (London Inter-bank Offered Rate), which was reduced to 5.3 percent for one year through negotiations.
The banks which agreed to provide foreign exchange are: Bank of Tokyo, Alfalah Bank Limited, Credit Suisse, Standard Chartered Bank, National Bank of Pakistan, United Bank Limited and Allied Bank Limited.
The highest contribution of $150m will come from Bank of Tokyo.
Amin said the agreement was aimed at boosting foreign exchange reserves and stopping the declining trend of the local currency.
“It will ease pressure on (foreign exchange) reserves, stabilise exchange rate and meet the requirement of higher oil imports,” he said.
The inter-bank rate of the rupee was 105.85 against the US dollar yesterday.
Amin said that under the agreement the banks were required to bring foreign exchange from abroad. “They cannot provide foreign exchange from the reserves held by domestic commercial banks. More than half of the country’s liquid reserves of over $10.3bn are currently held by the commercial banks,” he said.
“The government is in a very desperate mood to buy foreign exchange from right and left to build the reserves,” said Dr Ashfaque Hassan Khan, a former economic adviser of the government and dean at the Business School of the National University of Science and Technology (NUST).
He said the government was under pressure from the International Monetary Fund and in fact it was one of the prior actions for a $6.64bn extended fund facility to mop up $125m from the market between July 1 and August 31 which shattered the market.
Dr Khan said that the IMF programme required the government to build $4bn of additional reserves during the current fiscal year. Internews