The government led by Prime Minister Imran Khan is considering a proposal to borrow cookies and gold bars from the people to boost Pakistan’s foreign exchange reserves which remain on a slippery trajectory despite taking more than $5 billion from loans over the past three months from bilateral and multilateral creditors, according to a media report on Sunday.
The proposal was discussed at the Economic Executive Council (EEC), the body comprising all economy ministers and the Governor of the State Bank of Pakistan (SBP), The Express Tribune newspaper reported, citing sources at the Ministry of Finance.
Under the proposal, commercial banks will issue a discounted negotiable instrument to the owner of the gold and pay an interest rate on the precious metal. The commercial bank will deposit the gold with the SBP, which will be able to monetize it to increase the already largely constituted foreign exchange reserves by contracting costly foreign loans.
The central bank already has 2.01 million troy ounces of fine gold reserves valued at $3.8 billion, according to the SBP Statement of Reserves as of December 31, 2021.
Central bank reserves have consistently followed a declining trajectory and slipped further to $17 billion as of Feb. 11, according to the SBP statement.
In the past three months, the government has taken out a $3 billion loan from Saudi Arabia, raised the most expensive $1 billion debt in Pakistan’s history by pledging a highway, and received An additional $1 billion from the International Monetary Fund. But reserves still could not be stabilized due to declining exports and rising imports as well as increasing repayments of foreign loans.
The proposal to borrow gold from the people against a negotiable security was originally floated by an expatriate, Tahir Mehmood, to Prime Minister Khan. The Prime Minister then referred the matter to the EEC which has now refined it to increase reserves and bring more liquidity to the market against an idle asset.
At the last EEC meeting, Finance Minister Shaukat Tarin said the purpose of gold-based negotiable instruments was to convert gold into foreign currencies to increase foreign exchange reserves.
According to some estimates shared with the EEC, the locals hold around 5,000 tonnes of gold bars and biscuits. But no firm figures were available, the sources said.
The EEC also discussed the issue of low tax contributions from jewellers, instructing the FBR to prepare a plan for collecting taxes due from the gold industry. There are approximately 36,000 jewelers and only more than 50 registered for sales tax purposes with the FBR.
Last month, the government imposed a 17% sales tax on the sale of gold and jewellery.
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