Pakistan’s bigwigs have failed to craft an effective strategy to stop the free fall of the local currency, as policy discussions have so far remained focused on better management of borders and trade related payments.
According to official documents and background discussions with people involved in the process, Prime Minister (PM) Shehbaz Sharif has taken numerous meetings in recent days and also set up a committee under the chairmanship of Finance Minister Miftah Ismail “to stabilise foreign currency markets”.
Despite taking input from the intelligence agencies, however, the authorities have failed to arrest the free fall of the currency. Continuing with the downtrend, the rupee on Monday closed at Rs237.91 to a dollar in the interbank. The rate in the open market was far above, trading around Rs244 to Rs246 to a dollar.
The constant downfall of the local currency has also eroded the gain of reduction in crude oil prices and people are forced to pay the highest rates in the country’s history.
Last Monday, the PM Shehbaz had set up a committee to review the dwindling currency situation. The committee met the next day and finalised its interim recommendations for the PM.
The decisions taken in these meetings, however, were largely related to strengthening the existing operational mechanisms. The meeting also decided that the Federal Board of Revenue (FBR) will issue a fresh notification mandating international passengers to declare their foreign currency, in addition to improving its system for real-time reporting of currency flows.
Outbound international passengers will have to declare their currency only if it is $5,000 or more, and inbound air travellers will make a declaration in case they hold $10,000 or more. The notification, which is expected soon, will end the uncertainty for international passengers.
At present, air travellers are required to make a foreign currency declaration, irrespective of the amount.
The sources said that some of the new measures that the government has started adopting may bring marginal improvement in the situation. The government was still not fully realising the gravity of the situation, which requires drastic enforcement steps against hoarders, including bankers, and making accurate forecasts of currency demand and supply.
To stabilise the foreign currency markets, the PM constituted a committee on foreign exchange. Besides the Minister for Finance as its chairman, the adviser to PM on Establishment MNA Ali Pervez Malik, Governor SBP, Secretary Finance, Chairman FBR, Director General of Intelligence Bureau and representatives of the Director General ISI and the MI were included as its members.
The committee has been mandated to suggest measures to curb manipulation in foreign currency markets, propose steps to address market imperfections and unregulated illegal practices, including hawala and hundi trade, and smuggling of foreign currency.
The committee was also asked to recommend a strategy to discourage hoarding of foreign currency for speculative purposes and prevent misuse of debit and credit cards for outward remittance of foreign currency.
The sources maintained that the committee discussed these issues and submitted its findings to the PM last week.
In light of these recommendations, it has been decided that the FBR and the SBP will take measures to discourage over-invoicing by importers that is resulting in more than the required outflow of the foreign currency. The FBR and SBP will also take measures to ensure better monitoring of the borders, including depositing export proceeds from Afghanistan in a timely manner.
Accordingly, the FBR has been directed to streamline its currency declaration regime, which at one hand will reduce the hardships being faced by the commuters, and on the other will provide real time information about the inward and outward movement of currency through airports.
It has also been decided that the FBR will launch an application that will allow outbound passenger to make advance declarations without any hassle.
However, some of the participants of the meeting were of the view that these small steps would not help to soothe the nerves of the markets, as the government needs to make bold steps to address the situation. They said the central bank and government were not willing to crackdown on bankers, who have made billions betting on the rupee.
Similarly, the government’s targets for the exports, imports and current account deficits were also unrealistic and need to be revised to bring some realism in the numbers and then it could plan the inflows and outflows accordingly.
Published in The Express Tribune, September 20th, 2022.
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