The government has initiated a sweeping crackdown on individuals and groups involved in dollar smuggling, hoarding, and organised crime cartels that have been causing substantial losses to the national economy.
This decisive action comes on the heels of identifying government officials implicated in these illegal economic activities. The crackdown against foreign currency smugglers has resulted in a remarkable 3.5% appreciation of the Pakistani currency against the US dollar, marking a gain of Rs11 in a single day, with the exchange rate reaching Rs312 against the dollar on Wednesday. This recovery also had a ripple effect, leading to a significant reduction in gold prices by 4.5%, or Rs10,500, bringing the price of gold to Rs222,300 per tola (11.66 grams) in Pakistan.
Read Govt initiates 'large-scale' crackdown on currency smuggling
Official sources have revealed that major policy reforms are in the pipeline, signalling a transformation in commodity and currency trading. The sources also emphasised the upgrading of surveillance systems at land, sea, and airports to combat illegal movements of goods and currency, stating unequivocally that such activities will not be tolerated.
Reports indicate that currency smugglers have gone underground in response to the crackdown, which has allowed the Pakistani currency to regain over 5% or Rs16 in just two days, according to the Exchange Companies Association of Pakistan (ECAP). Caretaker Interior Minister Senator Sarfaraz Bugti tweeted about the launch of a nationwide crackdown on smugglers, initiated under the directives of Prime Minister Anwaarul Haq Kakar. The Frontier Corps Balochistan (North) successfully thwarted a sugar-smuggling attempt to Afghanistan on Tuesday night.
In the interbank market, where importers and exporters play a pivotal role, the local currency remained relatively stable, hovering around the previous day's record low of Rs307 against the US dollar. State Bank of Pakistan (SBP) data showed a slight improvement of 0.04%, or Rs0.12, bringing the currency to Rs306.98 against the greenback. The range-bound trading activity in the interbank market suggests that the currency may stabilise at its current level in the short term.
Since the caretaker government assumed power in mid-August, the currency has experienced a cumulative depreciation of slightly over 6%, equivalent to Rs18.5. Speculation had been rife in the market during the final days of the previous government that the interim administration might allow the currency to undergo a fresh round of depreciation, as required under the International Monetary Fund (IMF) loan programme. However, the decision was deferred to the caretaker government to preserve political capital.
With the recent improvement in the open market and stability in the interbank market, the exchange rate disparity between the two markets has narrowed down to Rs5 (or 1.6%) at present. This is still slightly higher than the IMF-recommended maximum of 1.25% (approximately Rs4), indicating a small gap of around Rs1 remains to implement the IMF’s recommended level. To bridge this gap, either the open market exchange rate must decrease or the inter-bank rate must experience another increase.
Market experts suggest that the absence of foreign currency inflows from multilateral and bilateral creditors is contributing to the rupee’s depreciation in the interbank market. High demand for the US dollar persists, primarily to finance imports and service foreign debt obligations.
According to the Pakistan Sarafa Gems and Jewellers Association, the price of gold has plummeted by 7.3% or Rs17,500 in the past three consecutive working days, retracting from its near all-time high of Rs239,800 per tola last week. This recent price reduction brings gold to within Rs200 of the record high set three months ago in May.
In the international market, gold prices dropped by $5 to $1,926 per ounce (31.10 grams), as reported by the association.
WITH ADDITIONAL INPUT FROM APP
Published in The Express Tribune, September 7th, 2023.
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