Emergency was withdrawn by President Pervez Musharraf last week, but not before it left a negative impact on the economy. And these negative impacts will continue to hurt the economy for the coming few months.
After the imposition of the emergency, foreign delegates and importers refused to visit Pakistan, which resulted in slow growth in exports. The country's economy also suffered a setback in the shape of decline in foreign reserves.
Foreign exchange reserves have been disturbed due to state of emergency imposed on November 3, 2007 by President Musharraf.
The State Bank of Pakistan's latest statistics about foreign reserves show that the country's foreign reserves have plunged by five per cent after the imposition of state of emergency during the last one month.
Since the imposition of state of emergency on November 3 major outflows have been witnessed from the Special Convertible Rupee Account (SCRA) during the last one month, an analyst said.
SCRA is basically used for transactions made by foreigners for trading in stock markets and it has witnessed that after the imposition of emergency a major decline has been witnessed in the SCRA account, as the foreigners withdrew their amount from the stock market due to uncertainty in the country.
The State Bank of Pakistan's (SBP) statistics show that overall foreign reserves have registered some five per cent decline in the last one month from November 10 to December 8.
On Thursday November 10, the country's overall foreign reserves stood at $15.6225 billion coming down from $16.3875 billion of historical level during the mid of last month, depicting a dip of $765 million during the last one month.
A complete decline has been witnessed in the SBP reserves, which have reduced by 5.5 per cent or $765.5 million to $15.6225 billion after the imposition of emergency. Earlier, on November 10, it stood at $16.3875 billion.
While, reserves held by the banks remain at $2.2048 billion during the week that ended on December 8, 2007 compared to $2.2043 billion on November 10.
During the week that ended on December 8, the total liquid foreign reserves held by the country plunged by $142 million. The foreign exchange reserves declined to $15.622 billion on December 8 from $15.764 billion on December 1.
Foreign reserves held by the State Bank of Pakistan (SBP) fell to $13.417 billion from $13.557 billion during the week, while net foreign reserves held by banks other than SBP fell to $2.204 billion from $2.207 billion during the same week.
Bankers and analysts say this is happening because the central bank has been active in the interbank foreign exchange market, huge outflows of portfolio investment and oil payments.
The SBP is selling dollars in the interbank market to support the falling domestic currency by intervening in the market since last several weeks, pouring in as much as $100 million on some occasions, bankers informed.
The rupee had fallen to Rs61.48 for a dollar last week, which necessitated SBP's intervention. The central bank came into action and pumped in dollars. As a result, the greenback came down. It traded at Rs61.19 on Thursday.
Since portfolio investment has been coming down at a faster pace due to imposition of emergency, the pressure on rupee has become even more intense. A net outflow of $220 million was recorded in SCRA in November, bankers said.
He said the interbank market had been facing a shortage of dollars since the beginning of the current fiscal year due to outflows from the Special Convertible Rupee Accounts (SCRA).
"There are some factors behind the declining foreign reserves, however the outflows from the SCRA account and high payments of oil are the chief reasons," an analyst said.
The foreign investors have withdrawn their amount from the stock market after the emergency and uncertainty in the country, he said.
He said some $300 million outflow has been registered in the SCRA during November, however, presently foreign investors are again investing in the stock market ahead of President Musharraf’s announcement that emergency will be lifted on December 15.
Therefore, it is expected that during the next few weeks SCRA would return to its previous position.
On the other hand, the high oil payment, due to the rising international oil prices, is another reason behind the decline in the country's foreign reserves.
Oil prices in the world market reached at 99 dollar per barrel during November, which made the government spend more for the import of oil, he informed.
"It has been expected that some $200-250 million have been paid on the account of oil import," he added. Despite, the huge payments, no new privatization has been done during the current fiscal year, therefore the foreign reserves are on a decline.
Market sources said foreign investors, who open these accounts with banks operating in Pakistan for investment in stock markets and government securities, had pulled their money back due to political turmoil.
As a result, the central bank has had to intervene several times; drawing on its foreign exchange reserves to sell US currency in the market. Importers had also increased their forward buying, fearing extraordinary steps like freezing of foreign currency accounts, bankers said.
Pakistan's imports have been exceeding its exports by a big margin, putting pressure on its domestic currency. This gap in demand and supply of foreign currency is being met through foreign exchangeinflows received in the form of foreign investment and remittances.