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Pakistan

Speculators driving dollar value upwards: Shaukat Tarin

  • Former finance minister says currency, based on REER, should not be over Rs185 per dollar
  • Criticises govt for not securing fuel shipments and resorting to load-shedding
Published July 7, 2022
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KARACHI: Former finance minister Shaukat Tarin said on Thursday that speculators are driving the rate of dollar upwards, and the greenback should not be more than Rs185 based on Pakistan’s real effective exchange rate (REER).

REER is the value of a country’s currency against a basket of currencies of global trading partners. A REER below 100 means the country’s exports are competitive, while imports are expensive.

According to the latest data shared by the State Bank of Pakistan, REER dropped to 93.57 in May 2022, the lowest level since September 2020. Pakistan's rupee closed at 207.91 against the US dollar on Thursday.

Rupee registers marginal gain against US dollar

“While exporters are the main speculators, the role of exchange companies and banks cannot be ruled out,” he said at the Karachi Press Club (KPC).

Chances of default?

Meanwhile, commenting on the Pakistan Democratic Movement (PDM) government's 90-day performance, Tarin said it is steering the country towards default and “if the current challenges are not resolved, then default will be imminent for Pakistan”.

He was of the view that political instability amid the commodity 'supercycle' in the international market could derail the economy.

“Inflation has yet to peak and it can spike to 50% as well,” he said, highlighting that wholesale inflation was recorded at 40%, highest since 1974.

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He lamented that the government was abandoning welfare projects initiated by the Pakistan Tehreek-e-Insaf (PTI) government such as Kamyab Pakistan, Kamyab Jawan and the Mera Pakistan Mera Ghar.

Russia is not Iran and has not been facing any sanctions. Countries in Europe, India, Bangladesh and Sri Lanka are buying Russian oil. However, people at the helm of affairs in Pakistan have been fearing repercussions from America: Shaukat Tarin

Load-shedding issues

The former minister also pointed out that the government failed to order fuel shipments on time and resorted to energy load-shedding to hide its mistake.

He stressed that urban areas were facing 4 to 8 hours of load-shedding while power cuts in rural areas were 8 to 12 hours long.

A lot of coal, RLNG and furnace oil-based power plants are facing shutdowns because fuel was not timely procured, he said. According to him, the country would continue to face load-shedding in the foreseeable future.

Power crisis: Pakistan's request for LNG fails, not a single offer received

“The government has chosen to inflict load-shedding on the people in a bid to save foreign exchange by withholding payments of independent power producers,” he added.

He said spike in petrol and diesel prices would affect the cost of public transport, agriculture tube wells, tractors, food and other essentials.

“Price of all daily items has gone up by 30-50%,” he said.

Business environment

Meanwhile, borrowing costs of consumer loans have increased sharply as well and it is expected to rise further, he said. Tarin highlighted that rupee devaluation and soaring KIBOR rates had hiked the cost of doing business.

Textiles, automobiles and mobile phone manufacturing plants have shut down and millions of people were laid off as a result, he said.

He cited that fulfilment of tax target of Rs6.1 trillion by the Federal Board of Revenue in fiscal year 2021-22 was an accomplishment of the PTI government.

He further said that the PTI government imposed no super tax, and did not increase tax rates.

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“Imran Khan slashed the Petroleum Levy to zero,” he said.

Tarin said the present government was giving relief to tax evaders by introducing Fixed Tax Regime for traders.

“GST exemptions have been reintroduced while withdrawal of CNIC condition has hit the economy’s documentation drive and will encourage black economy,” he said.

He said that there was a dire need to broaden the tax base.

“We left a database of 43 million potential taxpayers. However, they take the easy way out by taxing the existing taxpayers,” he added.

He said that track and trace system implementation has visibly gone into a slowdown.

Muzammil Aslam, PTI’s spokesperson on economic affairs, said Moody’s rating for Pakistan remained at B3 since 2015. However, in its latest review, it reaffirmed the B3 rating but changed the outlook from stable to negative.

Negative outlook is driven by heightened external vulnerability risk and uncertainty around the ability to secure additional external financing to meet its needs.

Pakistan's external vulnerability risk has been amplified by rising inflation, which puts downward pressure on the current account, the currency and already-thin foreign exchange reserves, especially in the context of heightened political and social risk.

“As per news reports, the International Monetary Fund (IMF) has also set four tough prior conditions, some of which were there previously and some which are new.

"We believe that this is likely due to the lack of trust that has been developed recently, especially due to relaxation in NAB laws and poor budget 2023,” Aslam said, referring to Pakistan's efforts towards reviving its stalled IMF programme.

Aslam said that the budget has also not been reconciled.

Govt makes a move towards Russian crude import, urges refineries to furnish analysis

Buying Russian oil

While talking about buying Russian fuel, Tarin said that Russia is not Iran and has not been facing any sanctions.

He said that countries in Europe, India, Bangladesh and Sri Lanka were buying Russian oil. However, the people at the helm of affairs in Pakistan at the moment have been fearing repercussions from America.

He said that there are many plants in the country that could process Russian oil including that of Byco and Attock. Moreover, one can buy Russian oil and swap it in the international market to hedge against rising prices.

Comments

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Syed Arif Hussain Zahidi Jul 07, 2022 09:33pm
He stinks. Nothing makes sense. There are no specifics. Russian oil may be cheap and maybe is being purchased by some countries he mentions but for Pakistan the freight rates kill all possible discount you can think off. Let him give a figure. TOO MUCH BULL. MISLEADING PEOPLE.
thumb_up Recommended (0)
Loser Jul 07, 2022 11:20pm
Full of hot air and advice out of govt. When in power, what you achieved? Why did you not contract long term oil and gas when it was so cheap during covid?
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Amir Jul 08, 2022 03:45am
Always blaming the speculators. LOW GDP, CA deficit....are not to blame.
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Hassan Jul 08, 2022 12:44pm
What about the $3.6 billion annual spend on importing edible fats /palm oil? The almost $1 billion importing tea, coffee & creamers? $250 million on sugar? $100 million on cocoa, chocolate & tobacco? Can we live without super sweet tea and coffee? Without dishes floating in oil? And without smoking? We have a cultural problem of eating our way into debt. These imports are totally unnecessary, we have local sugar, butter & oil, we just need to reduce how much we put into our dishes. Cutting these would SAVE $5 BILLION in an instant, and probably reduce that shocking amount of diabetes, hypertension and heart attacks in Pakistan. Is any politician brave enough to address these?
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Ahmad Hassan Awan Jul 13, 2022 04:32pm
@Hassan, I totally agreed with your solutions. Likewise we should go for online education which will reduce consumption of petrol. We should import oil and gas only 16 billion dollar worth (provided our exports remain stagnant at 30 billion dollars). This rationing measure will goad our government to prioritize the sectors where imported fuel should be consumed. Load shedding of domestic consumers must be continued until our foreign exchange reserves reaches to 30 billion dollar (it will take 5 hard years). Imports must be rationed and total exports must not exceed 55 billion dollars.
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