Muhammad Hanif
ACCORDING to the balance, the foreign exchange reserves are the foreign currencies held by a country’s central bank. They are also called foreign currency reserves or foreign reserves. Most nations hold their foreign currency reserves in US dollars, being the global currency. The Forex Reserves take the form of bank notes, deposits, bonds, treasury bills, and other government securities. The foreign currency reserves are vital to a nation’s economic well-being, as these act as a nation’s backup fund to keep its currency’s value stable in the case of emergencies, like the COVID-19, a border tension or a war. The countries also need foreign currency reserves to maintain competitively priced exports, keep the domestic prices stable, keep a low interest rate to attract the domestic and foreign investment, pay external debts, and pay for the imports.
Normally, at a minimum, a country should have enough Forex Reserves to pay for three to six months of imports, to cover its debt payments and current account deficits for 12 months. However, the countries, having large amounts of the Forex Reserves are considered economically and security wise more stable and strong, having an immense capacity to evade through any type of the crisis situations. Pakistan has a bare minimum amount of US $ 18 billion as its Forex Reserves. To sustain itself as a sovereign country, Pakistan needs to create and maintain at least US $ 60 billion as its Forex Reserves, to pay its foreign debt (about US $ 7 billion per year), to keep a stable balance of payments situation, pay subsidies to keep the prices at a desired level, to support the export industry, keep the price of the rupee stable, encourage domestic/foreign investment, and to deal with the emergent situations.
Also, with sufficient reserves at its disposal, Pakistan will be in a stronger position to deter any Indian aggression in Kashmir or against Pakistan, as India will risk facing a devastating response. In this context, comparing the size of their economies, while India is currently having US $ 473.3 billion as its Forex Reserves, Pakistan should have minimum US $ 80 billion as its Forex Reserves. Therefore, for the aforementioned economic and strategic reasons, it is imperative for Pakistan to increase its Forex Reserves urgently.
Pakistan can triple its Forex Reserves in the next three years by increasing its exports and limiting the imports, increasing foreign remittances by its employees/workers, by increasing earnings of its tourism industry (Turkey earned US $ 34.5 billion in 2019), and attracting/facilitating the Foreign Direct Investment (FDI).While Pakistan should continue its financial support to the export industry, it should encourage and facilitate the Pakistani workers abroad to send/invest their foreign exchange earnings in Pakistan. In this regard, an appreciable major step has already been initiated by the Government/the State Bank that involves allowing non-resident Pakistanis to open digital accounts. In this context, as per the State Bank Governor Reza Baqir, eight domestic banks will facilitate opening the accounts, called Roshan Digital Accounts, which will accept deposits in either U.S. dollars or Pakistani rupees.
Apart from the above, to further multiply its workers’ remittances from abroad, the government should also focus on sending an additional large number of properly trained manpower to foreign countries. In this context, the government should spend one year in revamping and expanding workers’ training infrastructure by importing modern machinery and creating a six month training programme for all important trades/jobs. After one year, hoping that COVID-19 will be sufficiently controlled with the vaccine availability in the market, all the airlines will start operating and Pakistan should start sending additional well trained manpower abroad. In this context, Pakistan can learn from the experience of the Philippines, which has 500 schools for training and sending its nursing staff abroad, who are sending US $28 billion to Philippine every year.
The Pakistan Government should also concentrate on improving/refining and expanding the facilities in the tourism industry in the next one year, by supporting the industry and monitoring that the resources are used judiciously and with dedication to achieve the decided targets. In the next two years, Pakistan should be ready to start earning the foreign currencies by receiving a large number of foreign tourists.
To attract the Foreign Direct Investment (FDI), Pakistan should spend the next one year to create an investment friendly environment by ensuring socio-political stability, creating a fair and attractive business atmosphere for both domestic and international investors, and improving the legal framework for protecting the legitimate rights and benefits of investors and refining institutions related to business and investment. The next two years should be utilized to attract maximum domestic and foreign investment related to the CPEC and the other areas.
In view of the above discussion, it can be said with full confidence that within the next three years, Pakistan’s Forex reserves can be tripled and the prices of domestic goods can be brought within the reach of the common people, provided the concerned government ministries/functionaries and its bureaucracy work hard with the honesty and dedication for the country and produce the desired results. While these efforts of the government will bring the much desired economic stability in the country, these endeavours will also make Pakistan economically sovereign and militarily much stronger to face the future challenges.
—The writer is a former Consultant and Research Fellow of Islamabad Policy Research Institute (IPRI), and Senior Research Fellow of Strategic Vision Institute (SVI), Islamabad.
