FM asks for action plan to arrest dollar’s rise
design: Ibrahim Yahya
The interim government on Thursday came up with a strategy to crack down on unauthorised foreign exchange dealers to arrest the rising dollar value in the open market that touched Rs317, an approach that may divert attention from the root cause of the problem.
In a preliminary meeting on the skyrocketing dollar, interim Finance Minister Dr Shamshad Akhtar asked for a clear action plan to deal with the smuggling of dollars that was said to be one of the reasons behind the surge in its price.
The central bank also purchased small amounts of dollars from the market this week, according to sources.
The decision to crack down on the dealers was made the day the rupee-dollar parity in inter-bank trading crossed Rs300, a threshold breached for the first time in Pakistan’s history on the back of high dollar demand because of imports, dollarisation of the economy, smuggling and financing of Afghanistan’s imports.
Officials of the State Bank of Pakistan (SBP), Ministry of Finance, Federal Investigation Agency (FIA) and Intelligence and Investigation (I&I) Customs as well as officers of intelligence agencies participated in the joint working group meeting, according to officials who were privy to the discussions.
The Ministry of Finance did not officially release any statement after the meeting.
It emerged that there was no clear roadmap on how to address the crisis in the currency exchange market, which would soon translate into another wave of inflation. Sources said that there was a blame game and some cosmetic measures were agreed as a solution to the problem.
The FIA and other law enforcement agencies have remained unable to stop the smuggling.
Participants of the meeting also discussed the role of foreign exchange dealers in the smuggling. Central bank officials were of the view that unauthorised currency exchange dealers were responsible for smuggling of the dollar and action should be taken against them.
It was decided that the FIA would take action against the unauthorised dealers. However, the FIA took similar steps in the past but they did not yield the desired results.
The central bank told the meeting that over 50 licensed dealers having more than 500 branches were operating across Pakistan.
The official foreign currency reserves fell to $7.93 billion as of last week, which had been built after taking over $5 billion in fresh loans in July.
Pakistan’s law enforcement agencies have failed to stop the smuggling of dollars to Afghanistan, which has been going on by using the crates of oranges and in connivance with the law enforcement agencies.
State institutions seem to have failed to guard borders and international airports that have turned into dens of smuggling. The central bank had also lowered the ceiling for the outbound flow of the greenback to $5,000 per person, which created problems for the people but did not help to curb the outflow.
Sources said that a major factor behind the high demand for dollars was the financing of smuggled goods from Iran, mainly diesel and edible oil, and payments for Afghan transit trade.
They pointed out that diesel smuggling from Iran deep into Pakistan was not possible without the involvement of agencies that were responsible to curb smuggling and ensure border security. The smuggled diesel price is paid in US dollars to Iran, according to Pakistan Customs’ officials.
Similarly, Afghan transit trade was also financed by buying dollars from Pakistan’s market but its exact quantum was unknown, said the customs’ officials.
However, there has been least focus on addressing these two issues that are driving the dollar price higher.
The difference between inter-bank and open market dollar rates was 5.7% on Thursday, which was much higher than the ceiling of 1.25% agreed between Pakistan and the International Monetary Fund.
Owing to the widening gap between inter-bank and open markets, foreign remittance inflows may also be affected.
SBP Deputy Governor Dr Inayat Hussain said on Wednesday that the dollar value was increasing due to buying by ordinary people and the high demand for imports.
During the meeting, the unnoticed smuggling of precious gems, jewellery and gold also came up for discussion. It was apprised that there was no surveillance of people involved in smuggling of precious stones from Pakistan. The meeting decided to formulate a policy to curb the smuggling of gems.
Published in The Express Tribune, August 25th, 2023.
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