Cost of Nuclear Tests in 1998

Daily Times, May 8, 2006
Nuclear tests cost taxpayers Rs 60b in dollar purchases
By Maryam Hussain

ISLAMABAD: Pakistan suffered an exchange loss of over Rs 60 billion in the post nuclear test period from May 1998 upto June 2001 on account of open market operations including currency swaps, says the Auditor General of Pakistan. This needs to be explained, the AG will say before the Public Accounts Committee (PAC) of Parliament in testimony today (Tuesday).

The AGP claims that the State Bank of Pakistan (SBP) has made a startling disclosure after 8 years before the PAC that the nuclear tests of May 28, 1998, cost the taxpayers of Pakistan about Rs 22 billion on account of purchase of dollars from the open market at much higher than the then market rates. The SBP admits that following Prime Minister Nawaz Sharif’s decision to freeze foreign currency accounts and subsequent economic sanctions of G-7 countries, the Finance Ministry under Sartaj Aziz approved the buying of dollars at much higher rates than those prevailing in the market to maintain reserves and pay foreign debt to avoid default on debt payments.

Sources told Daily Times that top SBP bosses have for the first time ever confessed in writing to the PAC that about $14billion were purchased at much higher than market rates during 1998-2004 which resulted in a collective loss of about Rs20 billion. Reportedly, upto Rs 2 per dollar were paid over and above the market rate of a dollar.

These dollars were purchased from some powerful industrial and business groups of Karachi, private banks and Dubai-based parties, and they were paid about Rs 20 billion in addition to the conversion rate of dollars purchased. Even after so many years, SBP is still reluctant to disclose the names of these groups and dealers, say insiders.

The policy of Nawaz Sharif to start buying dollars from the open market at much higher than market rates is said to have continued until 2004. While Shaukat Aziz was the finance minister, the SBP also purchased $12 billion from the market on higher than market rates, says the AGP – only about $2 billion were purchased from the market at above market rates during the Nawaz government, says the AGP.

To justify the buying of dollars at higher rates, the SBP bosses have claimed that Nawaz Sharif’s decision to freeze foreign currency bank accounts led to a drastic fall in remittances after the G-7 slapped sanctions on Pakistan. To maintain the required level of foreign reserves, the Finance Ministry approved buying dollars from the open market by paying a Rs 20 billion premium on these dollar purchases.