Rupee-dollar parity: Procuring dollars from market not a sustainable policy: Pasha

ISLAMABAD: The State Bank of Pakistan (SBP) procured dollars from the market, originated from hawala hundi, to manage the rupee dollar parity and shore up foreign exchange reserves, which is not a sustainable policy.

This was stated by Dr Hafeez Pasha, former finance minister, while speaking at Aaj TV’s programme ‘Paisa Bolta Hai with Anjum Ibrahim’.

Dr Pasha also stated that with negative growth in the large scale manufacturing (LSM) sector, besides decline in major agriculture crops including 28 percent in cotton production, the country will hardly achieve 2 percent Gross Domestic Production (GDP) growth rate against the budgeted target of 3.5 percent set for the current fiscal year.

Fitch forecasts Pakistan rupee at 285 against US dollar by June, 295 by FY26 end

He said that procuring dollars from the market to keep the rupee dollar parity between 278 and 280 was not a sustainable policy because exporters need incentives. And argued that the government agreed with International Monetary Fund (IMF), under which exporters would be liable to pay full tax of 29 percent, instead of one percent of their total export income in the past.

He lamented that neither tax break nor incentives are being given to exporters, in contrast to other regional competitors including India and Bangladesh, who incentivize their exporters. If government is not giving relief in taxes, at least it should keep the market based exchange rate, he maintained and noted that according to SBP data Real Effective Exchange Rate (REER) exceeded Rs100, indicating that local currency is overvalued.

He said GDP growth is the important indicator of economy which was hardly one percent in the first quarter of the current fiscal year. The country did not achieve on average 3 percent GDP growth during the last five years and registered the lowest rate in the country’ s history, said Dr. Pasha.

He further said that with 2.5 percent growth in population, per capita income has declined and around 44 percent population has been pushed below the poverty line. He further said that unemployment rate was 6-6.5 percent about 3-4 years back as per the labour survey but is at 22 percent today – highest in the country’ history. The number of idle young population has reached 20 million which is a matter of great concern.

He said that significant decline was recorded in inflation and remained below one percent in March. Core inflation which reflects clearer picture of demand and supply is still in the range of 6-8 percent.

Difference in core inflation and overall consumer price index (CPI) is on account of the prices of two things — food items and fuel cost.

Among the food items, a significant decline of 34 percent was observed in wheat and flour prices. This decline was due to suspending the procurement process and support prices by the government on IMF pressure, forcing farmers to dump it however this would lead to lower sowing of the crop next year with the distinct possibility of a shortfall.

He said that surprisingly the Pakistan Bureau of Statistics (PBS) stated that there was a 15 percent decrease recorded in fuel prices, even though the government kept prices stable to first pass onto electricity consumers and during the current fifteen days for Balochistan development adding that PBS data regarding inflation is highly questionable. He said that current account improved due to remittances, but goods and services trade deficit widened. There are two accounts in balance of payment - current and financial. Financial account is not in good state and is negative as foreign inflows are less than outflow for debt repayment, he added.

“By the end of the day even when current account is positive, overall balance of payment would not witness significant improvement compared to last year rather it would be worse”, said Dr. Pasha.

He argued that stabilization in economy is at a very high cost on account of loss to farmers and massive decline in investment which is the lowest in the last 25 years.

Talking about foreign inflows, Dr. Pasha said that according Economic Affairs Division (EAD) estimates, the country was expecting to receive around $19.5 billion in the current fiscal year from different sources including $9 billion rollovers from China and Saudi Arabia.

New inflow was estimated to be $10 billion in the current fiscal year, but the country hardly received $5 billion in the first nine months and was less than the amount, the country repaid.

He said that according to SBP data, the foreign inflow is negative which is a matter of great concern as reserves have come down to less than $10.5 billion- indicating that the economy is still fragile and there is no reason to be over confident.

Unless exports improve, the country would remain in the shadow of vulnerability, said Dr. Pasha, adding that trade deficit widened which is a long term indicator of where Pakistan stands.

Talking about global tariff war, he said that USA was the only country where Pakistan has significant surplus. Pakistan has wide deficit with China of around $12-$13 billion. The trade war would have ramifications for Pakistan, he added.

He said that direct and portfolio foreign investment was around $1.4 billion in the first 9 months of the current fiscal year which is the same level as in the previous year - $10-$15 billion investment was expected after the establishment of Special Investment Facilitation Council (SIFC), but it has yet materialize.

Talking about the upgradation by rating agencies, he said that Pakistan had a score of only 18 in 100 and the country is still very far from the investment grade.

He further said that government agreed with IMF to complete privatization process of PIA along with two DISCOs, but this has not yet been accomplished. This time the government may offer some better terms and incentives including procuring new aircrafts with sale tax exemption to make PIA privatization a success.

Talking about the IMF review, he said that economic indicators would be considered till end June for the review and some indicators have already gone into negative. Federal Board of Revenue (FBR) shortfall was recorded at over Rs 700 billion in the first nine months of the year and is expected to reach Rs 1000 billion by end June and would not meet the target set for the current fiscal year.

Copyright Business Recorder, 2025