ISLAMABAD: “The crackdown on illegal exchange dealers and envisaged investment inflows from friendly countries has been the major reason for a higher fall in the rupee against the dollar in the open market than inter-bank rate.”
This was stated by former Finance minister Dr Hafeez Pasha while talking to Business Recorder on Tuesday. However, he cautioned that an artificial appreciation of the rupee against dollar would encourage imports, which would, in turn, fuel a trade deficit with negative ramifications on the current account.
Pasha added that in such a scenario it would be difficult for the country to limit current account deficit to $6 billion and as a result, foreign exchange reserves, already under pressure, would deplete swiftly.
Open-market: rupee closes at 297-300 against USD
He further referred to the International Monetary Fund (IMF) projection that Pakistan would have to depreciate the exchange rate by 20.4 percent to maintain the trade deficit at a reasonable level.
The former minister said that due to regulatory weakness and manipulation by exchange companies, the difference between the inter-bank and open market rate widened to 9-10 percent against the 1.25 percent (plus/ minus) agreed with the IMF. He hinted that there could be some negative impact on investment inflows from friendly countries under SIFC.
Chairman Exchange Companies Association of Pakistan (ECA), Malik Bostan told Business Recorder that the crackdown against black market has begun yielding positive results in the market as the local currency has started appreciating against the dollar.
It was the black market that had led to a difference of Rs 30 between the inter-bank and open market, Bostan claimed, adding that if the crackdown continues and the market monitored on a regular basis, the dollar may come down to Rs 250-260. He said that as a result of the crackdown, demand for the dollar declined.
Bostan further argued that the significant difference in the rupee-dollar parity in the open market and inter-bank rate led to a decline in remittances as the remitters naturally preferred the hawala/ hundi mechanism.
Bostan said that he is hopeful that remittances would improve by up to 20 percent if the crackdown against the black marketers continues and regular monitoring was ensured.
Copyright Business Recorder, 2023
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