Between goals and reality

Pakistan’s currency exchange companies seem to be hurtling towards another potential crisis following the announcement of a fresh policy by the central bank. Under the new policy the State Bank of Pakistan has reduced to 35 per cent the import requirement of cash dollars against the export of foreign currencies. The move has come as a blow to exchange companies because previously they were allowed to import 100pc cash dollars. Already, fears have been raised about a possible shortage of the dollar in the open market.

In a SBP circular released on Monday, exchange companies were explicitly told to bring only 35pc cash dollars as opposed to 100pc against the export of foreign currencies to Dubai. The restriction would probably mean that the remaining 65pc dollars would have to be transferred through bank accounts — although the SBP has been largely silent on the issue.

The Exchange Companies’ Association of Pakistan (ECAP) sees it as a setback for the market because it will restrict the inflow of the greenback. The move is also expected to hurt the market mechanism as a whole as it would leave large gaps between supply and demand. Currency exchange companies will have to rely once again on banks to circulate dollars in the market. The most disturbing aspect of this development is that dollar procurement through banking channels will also cause delays. In many instances, it will take up to 96 hours for banks to route that currency to exchange companies. At least this was not the case previously when 100pc of the required cash dollars was available.

The government’s aspired goal is to reduce the cost of import and the new policy was crafted following consultations with the exchange companies, according to the head of the Forex Association of Pakistan. The government insists there would be adequate amount of dollars available and zero possibility of a delay in the procurement of the greenback, dismissing fears of the exchange companies. In the coming days or weeks, such claims are likely to be sorely tested.

Published in The Express Tribune, January 3^rd, 2018.

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