KARACHI: Amid dwindling foreign exchange reserves and massive devaluation of the local currency, Prime Minister Shehbaz Sharif has instructed policymakers to devise a comprehensive strategy in consultation with stakeholders to halt the rupee’s freefall and improve reserves.
Chairing a Zoom meeting on Monday with Chairman of Exchange Companies Association of Pakistan (ECAP) Malik Bostan, the Prime Minister expressed concern over the current situation.
Finance Minister Miftah Ismail had discussed the exchange rate situation in detail with an ECAP team last Saturday. Bostan said another Zoom meeting with the prime minister and the governor of the State Bank of Pakistan (SBP) is scheduled for Tuesday to discuss the worrying relationship with the rupee. with the US dollar.
The three meetings in four days reflect growing frustration in the halls of power in Islamabad. Currency experts said it is not easy to control the situation as reserves have shrunk while inflows are taking longer than expected to support the exchange rate.
Hold a Zoom meeting with currency traders
Pakistan expects a loan from the International Monetary Fund, a $2.3 billion rollover from China and help from Saudi Arabia. The hope of raising dollars on the international market through the launch of Sukuk bonds is not sustained due to the weakness of the country’s external accounts.
Under the previous government, the SBP supported the floating exchange rate, which worked well at first, but began to depreciate the local currency rapidly. FY22 was the worst, with SBP reserves falling by half and the rupee falling by more than 20%.
“It’s the free market or the exchange companies that raise the price of the dollar. In fact, the commercial banks have raised the rate,” Bostan told the prime minister.
Importers are opening more LCs due to the uncertain exchange rate while exporters are yielding less export earnings, causing shortage of dollars, he said.
In the previous meeting with the finance adviser last Saturday, the representatives of the exchange companies proposed to ban all imports except essential items.
“If someone feels that importing more items is necessary, he should organize the dollars himself,” suggested Zafar Paracha, Secretary General of ECAP.
During the meeting, it was also suggested that entire markets across the country should be closed before sunset, which would save a substantial amount of energy, reduce the oil import bill and restore supply to the general public.
Experts and analysts have suggested in their reports that any attempt to repeat the previous mechanism to depress dollar prices would be counterproductive for the economy.
The research director said the exchange rate should be based on market forces, adding that the government should avoid adopting any artificial mechanism to improve the value of the rupee.
Posted in Dawn, May 17, 2022