LAHORE: The Lahore Chamber of Commerce and Industry Saturday feared that the economy would further slip down owing to continuous unchecked rise in dollar price against the rupee.
“The State Bank of Pakistan should take stringent measures to curb the undesirable outflow of dollar by limiting foreign currency carrying, directing exchange companies to ensure biometric verification for all foreign currency sales and trade in local currencies with bordering countries”, LCCI President Mian Nauman Kabir, Senior Vice President Mian Rehman Aziz Chan and Vice President Haris Ateeq said in a statement.
They added that exorbitant devaluation is taking place as the inter-bank dollar rate has plunged to Rs 192.52 as on May 13th 2022. This essentially means that a devaluation of around 6% has taken place in the last one month only.
The LCCI office-bearers said that the main cause of the devaluation in recent times has been the political uncertainty, rise in global crude oil prices and a burgeoning trade deficit which has surpassed 39 Billion Dollars in the first 10 months of the current financial year.
They said that since our Industry heavily relies on imports of raw materials, components and machinery, this devaluation has resulted in an increase in the cost of production. The new Government should take all possible measures to strengthen the local currency. There needs to be a renewed focus on import substitution and enhancing exports besides creating an environment of political stability. The imports of non-essential and luxury items should be curtailed.
LCCI President Mian Nauman Kabir said that trade in local currencies, particularly with China, will help Pakistan to end the burden of relying on USD in bilateral trade and to bring down the trade deficit. The LCCI office-bearers said that Pakistan’s mutual trade volume only with China is more than USD 13 billion and if the country makes currency swap agreements with regional countries in general and with China in particular, it will significantly lift pressure off the foreign exchange reserves and dependency on the dollar will be decreased.
The LCCI office-bearers said that historic devaluation in Pak-rupee has been recorded against the USD during the ongoing financial year. They said that the trade deficit is one of the major reasons for rupee devaluation.
They said that the currency swap agreements with regional countries will help make Pakistani currency stronger as weak Pak-rupee against the USD has become a serious matter of concern for the economy. They said that Pak-rupee devaluation has made the imports of raw materials and other necessities for the industrial sector more costly.
The LCCI office-bearers said that a stable currency is crucial to achieve real economic growth. They said that unfortunately, the Pakistani rupee is continuously falling against the dollar which has had negative impacts on the national economy. “When currency is losing its value and has a weaker outlook, not only foreign investors would stop coming in but the local investors would also hesitate to put in their capital in new ventures”, they added.
They said that currency devaluation always leads to lower industrial productivity as the imports go more expensive, rise in inflation, exporters have less incentives to cut production cost, reduce the purchasing power of the common man, rise in import bill and will pose serious challenges for the economy.
The Businessmen Panel (BMP) of the Federation of Pakistan Chambers of Commerce & Industry (FPCCI) has stressed the need for stopping a steep decline in foreign exchange reserves of the State Bank, terming it the key economic challenge for the new government, as the ballooning trade deficit along with dried up dollar inflows and external debt payments have plunged the foreign exchange reserves to a record low since Dec 2019.
FPCCI former president and BMP Chairman Mian Anjum Nisar observed that the since imports were rising at a rapid pace, the new government would likely to continue with import restricting policies, as the SBP has already increased the list of items subject to 100 percent cash margin requirement to control inflation and import bill. Debt repayments have put pressure on forex reserves with the SBP, which fell by $5.5 billion during Feb 28 to April 8, 2022, to $10.8 billion. The decrease partly reflects repayment of a $2.4 billion loan from China that is scheduled to be renewed.
The urgent task that needed to be taken up was foreign exchange reserve management and for this purpose the major focus should be on negotiation with the IMF, he said. Strong relations with the US, China, and Saudi Arabia are very important in determining the outlook of foreign flows to the country and roll over of maturing debt. Moreover, initiatives for overseas Pakistanis such as Roshan Digital Account should be prioritized and proper channel flows for remittances should be maintained to keep foreign reserves afloat. He believed that the currency should be allowed to remain at its market determined level, and take any pressure from the external account. Since Jan to April, the rupee has depreciated by 6.2 percent against the dollar, whereas the real effective exchange rate as per the latest SBP report hovers at 97.91 as of Feb.
FPCCI former president said that the payment for settlement of the Reko Diq case, increasing current account deficit and delays in debt roll over resulted in rapid erosion of foreign exchange reserves; he said and added that fast depletion in reserves weighed on the rupee.
Pakistan’s foreign exchange reserves dropped to 2.6 percent in the week ending April 8, hitting their lowest level since June 2020 due to increased debt repayments and high current account deficit. Total reserves stood at $17 billion, compared with $17.5 billion in the previous week. Reserves held by the State Bank of Pakistan decreased by $470 million or 4.1 percent to $10.8 billion, which the SBP attributed to the external debt repayments. The SBP’s reserves, based on average imports of the last 12 months, are only enough to cover nearly two months of import bills.
According to data, the SBP reserves plummeted to USD 10.308 billion, a decrease of USD 190 million. External debt repayments had resulted in the rapid descent in the reserves to outflows. The fast depletion of the foreign exchange reserves was the result of Pakistan’s inflation of twin deficits, a lack of foreign currency inflows, and a sharp increase in the foreign debt servicing obligations. Dwindling reserves have put Pakistan’s currency under immense pressure, resulting in a dip of Rs191.77 per dollar in the interbank market.
The BMP Chairman said that with the delay in the revival of the International Monetary Fund program and falling foreign currency reserves, the Pakistani rupee has hit an all-time low against the US Dollar, crippling the country’s economy further.
In the week ended August 27, 2021 the foreign exchange reserves held by the central bank soared to an all-time high of $20.15 billion after Pakistan received general allocation of Special Drawing Rights worth $2,751.8 million from the IMF on August 24. On March 30, 2021, Pakistan borrowed $2.5 billion through Eurobonds by offering lucrative interest rates to lenders aimed at building the foreign exchange reserves. It received the first loan tranche of $991.4 million from the IMF on July 9, 2019, which helped bolster the reserves. In late December 2019, the IMF released the second loan tranche of around $454 million.
Copyright Business Recorder, 2022