Dar warns dollar hoarders

Finance Minister Ishaq Dar has warned of stern action against the hoarders and smugglers of US dollar as well as manipulators for keeping the rupee undervalued, and reiterated that the fair value of the rupee “is 180-200 to a dollar”. He elaborated his government’s action plan while chairing meetings with the presidents and CEOs of commercial banks and representatives of exchange companies at the State Bank of Pakistan (SBP) on Saturday.

Central bank Governor Jameel Ahmed co-chaired the meetings. Prime Minister’s Special Adviser on Finance Tariq Bajwa was also present, meeting participants told The Express Tribune. The objective was to address the shortage of dollar in markets, especially in the open market as small traders arrange import payments from there, and to support the appreciating rupee. Forex Association of Pakistan (FAP) President Malik Bostan said that Afghanistan had become a big burden on Pakistan’s economy since the US ended its twodecade-long war in August 2021. “Afghanistan is consuming $2 billion a month from Pakistan’s foreign exchange reserves…and is causing shortage of foreign currency in the domestic market,” he said. One dollar was being sold for Rs235-237 in Afghanistan on Saturday compared to Rs222.47 in Pakistan’s inter-bank market on Friday.

“This is encouraging smuggling of the foreign currency to Afghanistan,” he added. Pakistan’s government would initiate a crackdown on the illegal Hawala and Hundi operators and take the rupee to its fair value at around 180-200 “in a matter of weeks and days”, a meeting participant quoted Dar as saying. The domestic currency ended trading at Rs222.47 against the US dollar in the inter-bank market on Friday, having lost 1.25% (or Rs2.47) in the past three consecutive working days despite receipt of a loan of $1.5 billion from the Asian Development Bank (ADB) earlier in the week. Tresmark, a treasury advisory firm, said in its weekly commentary that the Real Effective Exchange Rate (REER) – the value of rupee against a basket of currencies of Pakistan’s trading partners – appreciated to “108 yesterday (Friday). This signifies that the rupee is overvalued already.”

The appreciation of REER above 100 stands negative for the developing economies like Pakistan. REER at over 100 makes imports cheaper and exports expensive, which may cause the widening of current account deficit in free economies. The central bank has mostly maintained REER at around 96-97 in recent years till Dar returned as the minister of finance in September 2022. REER had gone above 120 during the previous tenure of Dar about five years ago, as he protected the rupee against the dollar. Bostan revealed that $2 billion “goes to Afghanistan in the shape of official and unofficial trade, misuse of Afghan transit trade and smuggling of currencies and goods through borders”.

Pakistan’s foreign currency reserves have dropped to $7.5 billion (excluding the ADB loan of $1.5 billion) compared to reserves of $20 billion in August 2021, he pointed out. While chairing meetings at the SBP, Dar directed commercial banks and currency dealers to play their due role in increasing the supply of US dollar in the inter-bank and open markets and warned that whoever was found involved in hoarding of foreign currencies and manipulating the rupee’s value would face stern action from the government. Exchange Companies Association of Pakistan (ECAP) Secretary General Zafar Paracha proposed in the meeting that the government should establish banking channels with neighbouring countries like Afghanistan and Iran to do business through proper channels.

Besides, the authorities should also review the immigration policy with the bordering countries. “Almost 30,000 people move across the Durrand Line without visa every day. Most of them buy dollars from Pakistan and sell them in Afghanistan at a much higher price.” Dar was quoted as saying that his government had taken all the necessary measures to steer the economy out of the financial crisis. He boasted that the Pakistan Muslim League-Nawaz (PML-N) had left the economy in good condition at the completion of its last tenure in 2018.