Ordinary people, imports propel dollar higher

ISLAMABAD:

The State Bank of Pakistan (SBP) said on Wednesday that pent-up demand for imports and people rushing to buy as many dollars as possible were causing the rupee’s fall but it showed its inability to bring immediate stability to the market.

In a briefing to the Senate Standing Committee on Finance, central bank Deputy Governor Dr Inayat Hussain said “there was a substantial increase in demand for the dollar”.

Senator Saleem Mandviwalla of the Pakistan Peoples Party (PPP) chaired the meeting.

Ordinary people wanted to buy as many dollars from the market as possible, which was resulting in rupee devaluation, said the deputy governor.

“We cannot control the price, the demand for imports is very high,” he said.

The rupee sank to its lowest-ever value of almost Rs300 to a dollar in the inter-bank market and to Rs317 in the open market on Wednesday.

The latest wave of depreciation will further fuel inflation due to increase in prices of fuel, electricity, transport, pulses and other durable and consumable goods.

Hussain said that dollar demand had been on the rise after the central bank lifted restrictions on imports under an International Monetary Fund (IMF) deal.

He added that pent-up demand was the main reason behind the substantial increase in the dollar value.

However, the initial import data suggested that imports from July 1 to August 22 of current fiscal year were lower than the same period of last year.

Over $6 billion worth of goods have so far been imported during the current fiscal year compared to $8 billion in the same period of previous year, showing a one-fourth reduction in the bill.

On the other hand, exports till August 22 during the current fiscal year amounted to $3.4 billion, which were almost at the same level of last year.

Hussain plainly told the committee that the central bank could no longer influence the currency exchange market after the IMF deal.

“Our only role now is to have a functional currency market and to make sure that no one exploits the market,” said the deputy governor when he was asked for a solution to stop the rupee’s slide.

Pakistan has committed to the IMF that the difference between open and inter-bank markets would not be more than 1.25%.

According to this commitment, the rupee’s value in the inter-bank market should now be more than Rs310 per dollar.

The central bank has not taken up this issue with the IMF and is honouring the commitment.

If the central bank did not act, the rupee might be trading at Rs350 to a dollar in a few days, feared Senator Kamil Ali Agha of the PML-Q.

After remaining in surplus for four months, the current account also turned negative by over $800 million in July, largely because of a fall in exports and remittances.

“An uncertain outlook and low prospects are driving the dollar price, which can only stabilise when there is certainty,” remarked Hussain.

At a time when the country needs clarity and certainty on the economic front, the people running the country have put together a caretaker economic team which has started fighting with each other.

Hussain said that the caretaker government would be reviewing the situation before making a plan.

“Once the pressure of import payments ends, the situation will improve,” said Awais Manzur, Special Secretary Finance, while responding to a question.

Finance Minister Dr Shamshad Akhtar, Finance Secretary Imdadullah Bosal and SBP Governor Jameel Ahmad did not attend the meeting.

The committee decided to call the caretaker finance minister in the next meeting to discuss the dwindling value of the rupee.

“There is high political uncertainty and the caretaker government cannot take long-term decisions,” said Senator Sadia Abbasi of the PML-N.

To a question, Hussain said that banks did not have any role in devaluation as their net positions were almost zero that suggested that they were not gaining any benefit.

Committee chairman was of the opinion that the SBP should take precautionary measures to ensure the rupee’s stability and discourage masses from unnecessary dollar purchases.

Mandviwalla suggested that the SBP governor should hold a press conference to provide comfort to the markets.

Responding to that, Hussain said “if press conferences were a solution, then the economic problems would have ended much earlier.” The committee also discussed the massive surge in assets of taxmen, assuming that they were involved in corrupt practices.

Senator Saifullah Nyazee inquired about the mechanism to monitor the assets of FBR’s officers.

FBR chairman apprised the meeting that officers failing to declare their assets would not be eligible for the performance allowance and promotion.

However, there is currently no specific mechanism in place to verify the assets of inland and customs officers, he added.

The committee recommended that the FBR should develop a comprehensive mechanism to determine the assets of its officials.