Pakistan’s Ministry of Finance and Revenue were not part of a decision taken by the Civil Aviation Authority (CAA) making it mandatory for inbound international passengers to declare all the foreign currency in their possession – a move the State Bank of Pakistan (SBP) says will contribute to the pressure already on the rupee.
The proceedings of the Senate Standing Committee on Finance revealed, on Wednesday, that the National Directorate General of the Financial Action Task Force (FATF) had maneuvered the decision 12 days before the on-site visit of the FATF delegation.
However, neither the Ministry of Finance (MoF) nor the Federal Board of Revenue (FBR) was aware that the CAA had issued a notification on August 16, making it binding for all incoming international passengers to declare the foreign currency in their possession. The FATF delegation completed its visit to Pakistan on September 2.
The notification said that a declaration form would have to be filled and handed over to the airline staff, in which the passenger would show details of domestic and foreign currency.
The Deputy Governor of the State Bank of Pakistan, Inayat Hussain said, “Recently, exchange companies complained that the CAA’s decision to make the currency declaration mandatory is also one of the reasons behind the rupee coming under pressure.
“The passengers are now reluctant to bring in foreign currency,” said Hussain.
Pakistan Muslim League-Quaid (PMLQ) Senator, Kamil Ali Agha, had raised the issue of the foreign currency declaration.
“Under the Customs Act, the FBR does not have the authority to impose any restrictions on the inward movement of foreign currency,” said FBR Chairman Asim Ahmed. Adding that the FBR was not part of any decision to impose mandatory declaration of foreign currency.
“Our understanding was that the CAA issued the circular with the consent of the Pakistan Customs,” said the deputy governor of SBP.
The Minister of State for Finance Aisha Pasha was also unaware of the CAA’s decision. Subsequently, the additional secretary of the Finance Ministry checked with the director general of the National FATF Cell who expounded that the restriction has been imposed to comply with FATF requirements.
The revelation reveals the inconsistency in decision-making and lack of coordination between state institutions that often carries serious implications for the economy. The rupee on Wednesday shed its value further by Rs2 and closed at Rs223.42 to a dollar.
Senator Saleem Mandviwalla had first asked the Minister of State to get the CAA notification suspended and ascertain the facts. But on the intervention of the deputy governor, Mandviwalla withdrew his statement.
US currency export
It was also disclosed in the meeting that after the central bank allowed the export of US currency, approximately $7 million have been exported by exchange companies since August 15.
On August 15, exchange companies approached the central bank with a request to allow the export of US dollars due to low demand for the greenback in the local market, said the deputy governor. This happened after the dollar value plunged from nearly Rs240 to a dollar to Rs214, he added.
The exchange companies demanded they either be allowed to export the surplus US dollars or that the central bank should purchase the greenback from them.
“The central bank then allowed the export of the US dollar and, so far, US currency worth only $7 million has been exported,” said Hussain. Adding that the rupee value was coming under pressure again.
The committee wondered why the SBP had given permission, particularly when hardly $7 million were exported. Hussain explained that the supply of cash US dollars with the exchange companies increased due to the devaluation of the greenback.
Chairman of the Standing Committee, Senator Saleem Mandviwalla stated that “The SBP should not have allowed the export of the US currency at a time when the dollar was a sacred commodity in Pakistan.”
Agreeing with the chairman’s remarks, Federal Minister for State and Frontier Regions, Senator Talha Mehmood said, “The decision to export the US currency put additional pressure on the value of the rupee.”
Exchange companies purchase foreign currency from customers via outlets spread across Pakistan. This foreign currency, in cash, is subsequently exported out of Pakistan on consignment basis through Cash in Transit (CIT)/ Security Companies.
During the last fiscal year, exchange companies exported $3.1 billion in equivalent foreign currencies and then the US dollars were sold to commercial banks through their Nostro Accounts, said Hussain.
The deputy governor added that the exchange companies had purchased $4.4 billion from local clients and $2.2 billion were sold in the inter-bank in the previous fiscal year.
The committee also debated prevailing external sector conditions that compelled authorities to place restrictions on the outbound flight of dollars.
Published in The Express Tribune, September 8th, 2022.
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