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LAHORE: Federation of Pakistan Chambers of Commerce and Industry (FPCCI) on Monday has urged the government to control continuous instability of the rupee against the US dollar as political stability in the country is essential to prevent dollar flight.

In a statement, Muhammad Nadeem Qureshi, Regional Chairman FPCCI, said that the State Bank of Pakistan should take stringent measures to control the continuous rise in dollar prices.

Nadeem Qureshi observed that industrial expansion and economic growth are impossible without local currency stability. The dollar has been appreciating against the rupee for more than three months because of the higher current account deficit and political uncertainty.

He said that the dollar could not be controlled unless all parties had taken steps to improve the economy. In the current situation, there is a need to consider the charter of the economy. Lack of continuity in economic policies has also played an essential role in promoting economic problems.

Nadeem said that trade and industry have no idea of the real exchange rate needed by the central bank, which is the endpoint for the depreciation of the rupee. Though the exporters would get some benefit against their export proceeds, the overall economy would face a tough time as the cost has been rising and finally, it would affect consumption, which is the primary wheel to run the economy.

He added that excessive devaluation occurs as the inter-bank dollar rate has plunged to over Rs 200. This essentially means that a devaluation of around six percent has only taken place in the last one month.

FPCCI Regional chairman said that since our industry heavily relies on imports of raw materials, components and machinery, this devaluation has increased 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.

He said that trade in local currencies, particularly with China, will help Pakistan end the burden of relying on USD in bilateral trade and bring down the trade deficit. The currency swap agreements with regional countries will help make the Pakistani currency stronger as the weak Pak rupee against the USD has become a severe concern for the economy, he added.

Meanwhile, Pakistan Hosiery Manufacturers and Exporters Association (PHMA) has suggested the State Bank of Pakistan (SBP) to adopt an accommodative monetary policy stance instead of further raising it.

In a statement, PHMA Central Chairman Shahzad Azam Khan stressed the need for reduction in discount rate, arguing that low key policy rate is essential to make the Pakistani exports sector competitive.

The PHMA chairman said that the achievements in exports and stabilisation of the economy through the monetary policy measures now required to be sustained again by extending reduction in the policy rates so that the debt liability of the business sector is compensated through lower markup rate.

Demanding competitive interest rates at regional countries’ level, he said that the SBP’s stance of jumping the monetary policy rate by 1.5 percent is not right because it was already high compared with the markup rate of China, India and Bangladesh.

Pakistan should take advantage of those export orders, which were cancelled by other regional countries, he suggested and added that for this, the government will have to reduce the production cost of the industries to avail this offer by the international buyers.

Copyright Business Recorder, 2022

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