Minister of State for Finance Saleem Mandviwalla said that foreign currencies worth up to $12 million are being smuggled out of Pakistan on a daily basis, thus weakening the rupee against the dollar.
Speaking to a group of journalists at the Board of Investment on Tuesday, Mandviwalla said the dollar was overvalued in Pakistan, adding that its recent uptick against the rupee was inexplicable given the sound level of foreign exchange reserves in the country.
The dollar was selling for Rs99 in the open market on Tuesday evening.
“We had a meeting at the State Bank on Monday to look for reasons behind rupee’s recent devaluation against the dollar. While some people blamed it on the media, saying it has created unnecessary hype, nobody could actually pinpoint the exact cause,” Mandviwalla said.
Saying that almost 80% foreign exchange, including currencies other than the dollar, being smuggled every day is going to Dubai alone, the minister of state added that the central bank and his ministry were taking urgent steps to control the currency outflows.
“If the customs and the Airport Security Force fail to check the trend, I am going to involve a third agency to ensure that the rupee remains stable,” he said, adding that he was also taking authorities in Dubai on board over this issue.
Referring to some exporters’ practice of holding their dollars back in anticipation of an increase in the value of the dollar, Mandviwalla said speculations were also creating a credit crunch in the market.
“The value of dollar against the rupee is going to come down next week. Those who are indulging in speculation are in for a surprise,” he said, adding that his ‘target’ as the minister of state for finance was to bring the dollar’s value down to Rs90.
Commenting on fears about drying up of foreign exchange reserves, he said the country will be left with enough reserves to survive for up to six months even after meeting all monetary obligations to international financial institutions.
Mandviwalla said that although the number of registered foreign exchange companies was only in hundreds, roughly 30,000 currency dealers were currently operating in the country.
In order to curb the outflow of foreign currencies to the Middle East through illegal means so that dollars could be bought and hoarded in anticipation of the resulting insufficient liquidity back at home, he said a crackdown on unregistered foreign exchange dealers had already begun. “Somebody is trying to bring the government into disrepute. I will not let that happen,” he claimed.
Mandviwalla also hinted at ending the practice of forward booking – ie trading currency while minimising the risk of volatile exchange rates through signing a contract specifying the future rate of exchange – if it was found to have played any role in the recent surge of the dollar against the rupee.
Published in The Express Tribune, December 19th, 2012.