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ISLAMABAD: Pakistan Real Effective Exchange Rate (REER) could have been Rs322 by the end of June 2023 as most important determinant of change in currency’s value is the position of the country’s foreign exchange reserves.

This was stated Dr Hafeez Pasha, an academician and former finance minister while speaking at ‘Paisa Bolta Hai with Anjum Ibrahim’.

Pasha said that when the SBP calculates real effective exchange rate, they do not reflect the underline position with regard to balance of payment position. He said that as per their careful research, really effective exchange which is required to reduce the trade deficit of overall balance of payment deficit, it is in fact much worse than what it should be.

Pakistan’s REER inches upward to 87.1 in May 2023

He said that as per their calculation, the most important determinant of change in currency’s value is the position of the country’s foreign exchange reserves. He said that as per their working and calculation, the REER should have been Rs322 by the end of June 2023.

He said that the government should move ahead keeping in view the situation and recalled that during the last tenure of the Pakistan Muslim League-Nawaz (PML-N), Ishaq Dar had maintained the exchange rate at Rs104 and as a result, there was heavy loss to the export and the current account deficit was increased to $20billion by 2017-18. Pasha further stated that this was the reason of decline in profitability of export and incentivized import.

Pasha said that a credit payment has been brought to inter-bank and open market is also being influenced to some extent but the real problem is changes in exchange rate policy as it was controlled one from September to January 2023 and then market-based when there was pressure from the International Monetary Fund (IMF) and now again the government has reverted back to controlled exchange rate.

At one point, he said that the gap between interbank and open market rate was Rs25 to Rs 30 and as a result $4 billion diverted to hundi/ hawala and exports were affected. This, he said was not an appropriate policy. In contrast to this, he said that the government tried to control the import, which led to a reduction of 30 percent in import in volume term. This, he said, created shortage of raw material in market and consequently industrial production was declined by nine percent. The government is now compelled to reduce the current account deficit to zero, he added.

Pasha also pointed out that entire budget deficit is being financed through domestic borrowing as external financing has been negative. He said that budget wing of finance ministry claims that next fiscal year Rs2 trillion ($8 billion) net external financing would be brought in Pakistan whose possibility is highly unlikely. Last year, he said that Pakistan foreign exchange reserves were $9.8 billion, which have reduced to $3.5 billion and this fiscal year is being started with merely $3.5 to $4 billion when uncertainty would be at its peak. He said with such a small reserves, the country would be in problem in every week and month.

He said that the budget deficit leads to artificial increase of money supply and demand in the economy which in turns fuels inflation in the country.

In response to government ‘Plan-B’ envisaging $112 billion investment, he said what is disturbing is that the Plan-B targets are for fiscal year 2035 when the country does not know what would happen about the next few weeks, so there is a need of careful plan of external financing requirements of next fiscal year.

Under the Plan-B, it is being stated that the country’s GDP would reach to $1,000 billion by 2035. He said to achieve it the country would require annual GDP growth of nine per cent.

He said that from last few years, Chinese projects are non-existent and only last year it was only nominal $50 million, adding that Chinese IPPs pending payment have reached Rs300 billion. Pasha said this is why precisely we are asking the government as to what changes would be brought into the environment of the country that would change in the short-run revolutionary manners to attract massive foreign investment. He said that making a Council would not make it happen.

He said that one would like to know as to what the policies are that would result in a quantum jump into the foreign inflows but it remains unclear how this huge external investment would materialise. He said that one does not know how the government plans to achieve this ambitious target.

He said that one-window operation has been going on for quite long. He said it was understandable about the three level of committee as if the government has to move ahead it would have fast track it by reducing bureaucratic process. He said that there is no clarity in the Plan-B and only Plan-A with the IMF on the board would be for the following years. He said that Pakistan would have no other option by December 2023 but to seek another IMF programme. He said that Plan-A must take precedence at this point of time even if A and B both are to be pursued.

Copyright Business Recorder, 2023


Comments are closed.

Tulukan Mairandi Jun 26, 2023 10:04am
Well, i knew the situation was bleak, but not this bad. It's horrible and beyond repair. Open market rate of PKR near Afghan border is 350. Yet nobody is selling USD at 350. If the Govt really wants USD and thinks PKR is lower than 350, why doesn't it (and banks) rush to sell their USD at 350 rate? Because they know real value is >350.
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Abdulrehman Haroon Jun 26, 2023 12:10pm
@Tulukan Mairandi, You are stupid beyond measure. The Dollar is available everywhere at 305-306. Go check and then comment here.
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JAWAID Jun 26, 2023 12:21pm
Sir, Without given any statistical figures and recent announcement of amendment in Finance BILL, the narrator give his opinion. As we last seen, he always optimistic. Taking a chair in TV shows without elaborating his statement, how a normal Pakistani understand and agree with his views. It is request to please make an other episode on this topic, where he define with figures (Loan/Dibursement/Interest), what he say. On the person sitting in SBP, delighted to remove all restriction on imports on all products. Regards,
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imdad kolori Jun 26, 2023 12:42pm
Bro isnt your spouse the minister ? shouldnt you tell this to her
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Tulu Mar Jun 26, 2023 01:13pm
@Abdulrehman Haroon, yes, less then it.
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Tulu Mar Jun 26, 2023 01:15pm
Insted of thinking for loan, open fair and transparrent investments windows for our own Pakistani living inside or outside country. I think last or before that Pakistani living outside send 36 billion dollars in 12 months.
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dr fahad Jun 26, 2023 06:30pm
@Abdulrehman Haroon, he is Indian , just spreading negativity
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Muhammad Khurram Shabbir Jun 27, 2023 09:39pm
Interesting column
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Tanveer Jun 27, 2023 11:53pm
AOA, I have observed a number of times that Dr Hafeez Pasha is a enemy of Pakistan. He always undermine Pakistan currency and potential. I ask him that whether Pakistan is weaker then Bangladesh, Bhutan, Nepal, Afghanistan and other regional countries. Two months back he suggested that Pakistan's rupees real value is 295. Now he he is suggesting that Pakistan's rupees value against dollar is 322. This kind of peoples have their own agenda to weak Pakistan. Really rubbish analysis.
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