Tough action soon against companies raising dollar rates

KARACHI: The US dollar on Wednesday bounced back to Rs144 after reaching an all-time high of Rs146.25 during the day in the open market on Wednesday.

The dollar reached the all-time high after an increase of Rs2.25, following the agreement with the International Monetary Fund (IMF) securing a $6 billion bailout on Sunday. At the start of the week, Pakistani stocks fell as investors and analysts expressed doubt over the reported conditions of the deal.

In a bid to control the situation, Prime Minister Imran Khan ordered the authorities concerned to take action against foreign exchange companies selling US dollar at higher rates, sources informed Geo News.

The decision was taken at a meeting pertaining to foreign currency rates in the country, they said. State Bank of Pakistan (SBP) governor, FBR chairman and DG IB also attended the meeting.

The meeting, presided over by PM Khan, also had a delegation of E-Commerce Association of Pakistan (ECAP) in presence. The sources said the forum decided that companies deviating from set currency rates would not be given any concession.

The meeting also pondered over action against individuals not declaring their holdings under the recent Asset Declaration Scheme, the sources informed further. On the occasion, ECAP delegates were assured of not supporting the companies selling foreign currency at higher rates, they said.

The meeting was informed that dollar's purchasing price was Rs143.50 and selling price Rs144; Saudi Riyal was being purchased at Rs38.20 and sold at Rs38.35. "The investors have taken the IMF conditions as negative, especially with regard to free float of the rupee against the dollar and increasing the interest rate,” Yawar Uz-Zaman, head of Research at Shajar Capital, a brokerage house in Karachi told AFP.

For more than a year now Pakistan has struggled to stave off a looming balance-of-payments crisis while its economy teeters due to low growth, soaring inflation, and mounting debt. Some analysts suggested $6 billion would not be enough to pull the country back from the brink, with Zaman describing it as "insufficient".

Mohammad Sohail, CEO of Karachi-based brokerage house Topline Securities, said they believe Pakistan's annual foreign payments could be as high as $14 billion.

If Khan’s government can secure more funding from donors including China and Saudi Arabia, from whom Khan has already raised billions, then it could be sufficient, he said. "If not, it would not be enough for the foreign payments."

Salman Ahmed, head of institutional sales at ABA Ali Habib, a brokerage house in Karachi, said the amount was less important than the fact a deal had been struck at all.

"This will give the government a breathing space, and now it can look around for other sources of financing foreign debts," he said.

President Forex Association of Pakistan Malik Bostan said the prime minister constituted a committee comprising of theAdviser to the Prime Minister on Finance and the SBP’s Governor to develop mechanism on how to build up foreign exchange reserves. “We have discussed some steps with the Prime Minister to control dollar outflows and increase inflows,” Bostan said, referring to the meeting with the premier. “We have asked the Prime Minister Khan to take measures to curb dollar smuggling to Afghanistan, which is resulting in shortage of greenback.” Bostan said the exchange companies have potential to fetch $6-7 billion remittances flows per annum if the government allows more exchange companies to handle remittance business.

Analysts said the currency was stable in the official market due to lack of import and debt payments. Yaqoob Abubakar, an analyst at Tresmark an application that tracks financial markets said the market is considering unstable USD/PKR in future given the IMF bailout.

“Pakistan’s CAD (current account deficit) as a percentage of GDP is similar to its peers, but depleting reserves have been putting pressure on the rupee that will further weaken if ministry allows free float trading for the rupee against greenback that is supposed to be the mandatory condition for package,” Abubakar said.

The SBP’s foreign exchange reserves plunged to $8.9 billion during the week ended May 13 from $16 billion in May 2017. The government however said that it might not let the rupee fall as a result of the IMF program.