This was revealed in the data on FCDs issued by the SBP recently. The declines amounted to $39 million and $44 million in the months of August and September. At the end of the first five years of the introduction of the FE-25 Scheme, outstanding balances of FCDs reached the level of $2,296 million ($1,954 million by residents and $343 million non-residents) at the end of FY03.
The depositors preferred to hold most of them (about 85 percent) in the form of demand ($522 million as on end September 2005) and savings deposits ($2,202 million).
It may be recalled that FE-25 Scheme was introduced, vide FE Circular No 25 of June 20, 1998 when, in the aftermath of Pakistan's nuclear explosions and the imposition of sanctions by most western countries, a restriction was placed, vide FE Circular No 12 of 1998, on withdrawals in foreign currency from selected categories of foreign currency accounts existing as on May 28, 1998.
To allay fears of any future freezing, currently separate ledgers are being maintained by the ADs for deposits under FE-25 Scheme. Since these deposits are outside the State Bank's forward cover scheme, these are not required to be surrendered to the State Bank.
The ADs, who are free to decide the return on such deposits, are also under no restriction to lend, invest and place on deposit such funds in Pakistan or abroad subject to the observance of the prescribed regulations.
As regards their utilisation, $743 million were used for financing foreign trade viz., exports both under pre- and post-shipment arrangements ($552 million) and imports ($190 million) at the end of September 2005 while $1,662 million were placed with the SBP ($670 million under CRR and SCRR) and banks within Pakistan ($8 million) and abroad ($984 million). Besides, $814 million were held as balances held abroad ($394 million), cash in hand ($80 million) and as 'others' ($340 million).
Old foreign currency deposits scheme was very popular among depositors under which banks, and other ADs, could open with them FCAs of Pakistani nationals (resident in or outside Pakistan, including those having dual nationality) and all foreign nationals (residing abroad or in Pakistan) without prior approval of the State Bank.
These accounts, which enjoyed State Bank's forward cover, were free from all foreign exchange restrictions. Account holders enjoyed full freedom to operate their FCAs to the extent of the balance available for both rupee payments and for remittance to any country and for any purpose or for withdrawals in the shape of foreign currency notes and TCs.
At the time of the issuance of the aforementioned FE Circular No 12 of 1998, the government was under liability to make payments to the holders of FCDs in the amount of some $11 billion (History of SBP:1988-2003) whereas the FE kitty of Pakistan had only left in it $1 billion.
Ever since the issuance of FE-12, balances in the old FC accounts had been constantly on the decline and had to be convened into rupees or Special US Dollar Bonds by the holders at their option.
Five years after the disbanding of the old scheme viz., at the end of FY03, the outstanding balances in these accounts stood reduced to $293 million ($232 million held by residents and $62 million by non-residents) and stood reduced further to only $126 million ($93 million residents and $34 million non-residents) at the end of September 2005.