Karachi: The Federation of Pakistan Chambers of Commerce and Industry’s Businessmen Panel (BMP) has urged the government to control instability of rupee against the US dollar, as the industrial expansion and economic growth is not possible without stable local currency.
FPCCI former president and Businessmen Panel (BMP) Chairman Mian Anjum Nisar observed that dollar continued to appreciate against the rupee because of the higher current account deficit and burgeoning import bills. Besides increasing exports and controlling imports the government will have to take administrative measures, as a large demand of cash dollars are seen in the market.
Terming rupee depreciation against dollar a mysterious development, he said that continued fall of rupee is not understandable with the fact that there was no fundamental change in the country’s economic indicators.
FPCCI former president observed that the market-based flexible exchange rate system, resilience in remittances and other factors can help contain the current account deficit in a sustainable range of 2-3 percent of GDP in FY22.
Pakistan’s rupee remained on the receiving end, depreciating 0.5% against the US dollar in the inter-bank market as pressure persisted on the currency amid lack of clarity on inflows and economic support from international lenders and friendly countries.
In the open market, the Rupee lost 50 paisas for buying while remaining unchanged for selling against USD, closing at 186.50 and 187, respectively.
As per the State Bank of Pakistan (SBP), the rupee closed at 186.63 after a day-on-day decline of 94 paisas or 0.50%. Last Saturday, the rupee had closed at 185.69 after a decline of 0.03%.
The rupee had remained largely stable prior to the fall, as the market considered Pakistan’s macroeconomic indicators and ongoing talks with the International Monetary Fund (IMF) as giving some level of clarity going forward. However, since then, there has been little to no progress on those fronts.
Since the May 2021, the dollar has been appreciated by 7.15% against the local currency which lifted the cost of imported products and created uncertainty about the exchange rate stability. The dollar was at Rs164 in October 2020 and now again hovering in the range of Rs186 in May 2022.
Mian Anjum Nisar was of the view that State Bank of Pakistan and Ministry of Finance will have to remain vigilant in this regard. Besides this, the SBP and the government also need to intervene and come up with policy reforms to control depreciation of rupee which is becoming more and more valueless. He said that it was unfortunate that Pakistan had announced to start its financial transaction with several countries under currency swap agreement some eight years back in 2013 aiming at controlling its import bill and balance of payment, but no implementation is seen so far.
He said that trade and industry have no idea as to what is the real exchange rate needed by the central bank and which is the end point for depreciation of rupee. Though the exporters would get some benefit against their export proceeds but the overall economy would face a tough time as the cost has been rising and finally it would affect consumption, which is the main wheel to run the economy.
Mian Anjum Nisar urged the government to control volatility of rupee against the US dollar, showing that exchange rate is not managed by the State Bank of Pakistan (SBP) but it also indicates the exchange rate is not stable.
He said that the end of previous fiscal year with rising current account deficit was a serious blow to the exchange rate while the fear of higher demand of dollars further exacerbated with the information of the SBP that the county would need dollars to repay loans. He said that the high import bill this year was enough to signal the market that demand of dollar was very high. He said that the rising instability in the region has stirred fear within Pakistan that may hurt the normal economic life in the country, motivating people to buy dollars. At the same time, exports to Afghanistan have come down.
He said that huge depreciation of Rupee continued to damage national economy, as the cost of deals done by the businessmen with their foreign counterparts has increased manifold due to massive fall of rupee against dollar.
FPCCI former president said that excessive government borrowing, absence of foreign flows, lack of foreign investment and the huge current account deficit are the vital reasons for constant depreciation of Pak rupee. He said that the local currency has been under pressure due to falling foreign exchange reserves and increasing outflows amid foreign debt repayments. The SBP’s foreign exchange reserves have been under pressure due to external debt repayments recently.