Due to declining foreign exchange reserves, the rupee fell sharply.
Pakistani Prime Minister Shehbaz Sharif on Monday chaired a meeting with the Association of Currency Societies of Pakistan (ECAP) to prevent the rupiah from falling sharply following falling foreign exchange reserves and inflows taking longer than expected to maintain the exchange rate. According to a report by Dawn on Monday, the dollar was priced at 182.3 rupees when the PML-N-led coalition government took power on April 11, and the currency lost 11.4 rupees or 6.2 % of its value since then.
In the previous meeting with the finance adviser last Saturday, the representatives of the exchange companies proposed to ban all imports except essential items. Experts and analysts have suggested in their reports that any attempt to repeat the previous mechanism to depress dollar prices would be counterproductive for the economy.
“It’s the free market or the exchange companies that raise the price of the dollar. In fact, the commercial banks raised the rate,” ECAP Chairman Malik Bostan told the Prime Minister during the meeting. Importers are opening more LCs due to the uncertain exchange rate while exporters are yielding less export earnings, causing shortage of dollars, he added.
The research director said the exchange rate should be based on market forces, adding that the government should avoid adopting any artificial mechanism to improve the value of the rupee. During the meeting, it was also suggested that entire markets across the country should be closed before sunset, which would save a substantial amount of energy, reduce the oil import bill and to restore supply to the general public, Dawn reported.
Rising oil prices have already doubled oil import bills, but overall imports are also at an all-time high. In April, imports increased by 72%, leaving no room for the government to improve its external balances while the central bank’s foreign exchange reserves reached $10.3 billion, the lowest since June 2020.
Prior to Shehbaz Sharif’s meeting with Boston, Finance Minister Miftah Ismail discussed the exchange rate situation in detail with an ECAP team last Saturday. Pakistan expects a loan from the International Monetary Fund, a $2.3 billion rollover from China and aid from Saudi Arabia. However, the hope of raising dollars on the international market through the launch of Sukuk bonds is not sustained due to the weakness of the country’s external accounts.
According to a report by Dawn, the prime minister will hold another meeting with Bostan and the SBP governor on the exchange rate today. It will be the third meeting held by the government on the issue in four days and reflects growing frustration in the halls of power in Islamabad, according to the report.
The rapid depletion of foreign exchange reserves was the result of the inflation of Pakistan’s twin deficits, a lack of foreign exchange inflows and a sharp increase in external debt service obligations Inflation in Pakistan entered the double-digit mark in July, the strongest surge in nearly six years.
Summary of news:
- Due to declining foreign exchange reserves, the rupee fell sharply.
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