As the political fault line deepens, Pakistan is facing enormous economic challenges. The main challenge is how to stay afloat against dwindling foreign currency reserves, speculators and above all political uncertainty. International media and Indian websites have already started propagating that Pakistan is about to default, making it more vulnerable in bond markets.
Economic managers, particularly Miftah Ismael, are on fire within PMLN while ex-Finance Minister Ishaq Dar’s accountancy skills are being admired by the party. His critics within the party have gone silent and others are suggesting that he should come to Pakistan and manage the economy. Jittery markets suggest that Miftah Ismael’s assurances are not taken at face value. The apparent lack of trust in him is worrying for many observers that his hard work for reviving the IMF deal may be squandered.
Against this backdrop, panic buying, smuggling and hoarding of dollars continue as a safe currency of investment. The rupee has depreciated nearly 35 percent in a year against the dollar. It comes with the news that the dollar is appreciating against other currencies as well including the Euro. A new debate has started as to how to access dollars held by individuals in homes and lockers to reflect the currency in the State Bank’s reserves. The State Bank is left with 9 billion dollars in its kitty. Many solutions have been floated. Among them is general amnesty and an ironclad guarantee by the State Bank and FBR not to ask for sources of the funds/dollars.
However, the best and simplest solution for dollars held privately is to amend the law enacted in 2008 by the then Asif Ali Zardari government.
Government at that time wanted to facilitate money-changer companies as Pakistan was not facing a foreign currency crunch as it is facing today. There may be other reasons for that decision. Under the law after 2008, dollars could not be exchanged for rupees in banks. All private dollar bearers were forced to exchange their dollars with private exchange companies. This resulted in the currency reserves getting into private hands instead of the State Bank. The main reason for soaring of Pakistan’s foreign currency reserves from less than a billion dollars in 1999 to more than 22 billion in 2004 was that President Gen Pervez Musharraf removed the gap in the rate of the dollar in banks and opened markets. People started changing their dollars in banks which automatically fell into the State Bank reserves. Post-2008 Hafiz Sheikh and Shaukat Tareen as finance ministers ensured that this was reversed, and through a law people were forced to change their foreign currency with money-changers instead. Automatically, a lot of foreign currency started getting dumped in private hands and later smuggled out of the country.
Finance Minister Hafeez Sheikh and Shaukat Tareen duo presided over an era from 2008 onwards where Pak rupee fell from 60 rupees a dollar to 93 rupees a dollar in a short period. Under the same duo, it fell from 117 to 191 in just three years if the currency rate is the same. Dollars with exchanges are not held in banks so are not reported in the State Bank’s figures.
Under the Musharaf government, foreign exchange reserves soared to 22 billion as all dollars privately owned were in banks and reported in the State Bank data. Thus, the best solution is to amend this law so everyone can go and give dollars to buy rupees. This way we will enhance our reserves and the practice of private hoarding and smuggling of dollars can be checked.
Jan Achakzai is a geopolitical analyst, a politician from Balochistan and chairman of the Institute of New Horizons (INH) & Balochistan. He tweets Jan_Achakzai