Traders are struggling to pay for import of essential goods and raw materials
or eight months now, trading activities in Karachi, the commercial capital of the country, have been marred by the ongoing dollar shortage. At one point, more than 70,000 cargo containers of imported goods were stuck at the Karachi port due to non-clearance by the Customs as banks refused to pay dollars against letters of credit.
The depreciation of the Pakistan rupee due to depleting foreign exchange reserves and the smuggling of the US currency to Afghanistan have added to the miseries of Pakistani traders. Pakistan’s export proceeds are never enough to meet the import demand.
Traders have been struggling to pay for import of essential goods and raw materials due to the low foreign exchange reserves amid the delay in the release of funds by the International Monetary Fund (IMF). This foreign exchange shortage has caused great uncertainty and is resulting in commodity shortages. Besides petroleum products, Pakistan is a major importer of food and chemicals – including pharmaceutical raw materials – machinery and electronics.
The rising exchange rate has encouraged hoarders and smugglers. On May 12, US dollar peaked at Rs 295 in the interbank market and Rs 302 in the open market.
According to State Bank of Pakistan (SBP) data released on May 11, the overall liquid foreign currency reserves of the country, including the net reserves held by commercial banks stood at $9,990.4 million. These include the foreign currency reserves held by the central bank $4,383.4 million on May 5, down by $74 million compared to $4,457.2 million held on April 28.
Pakistan now has foreign exchange reserves to pay for less than three weeks of imports. The dollar crunch has also led to a dislocation in the forex market, with banks offering different rates than the interbank market for import and export transactions.
The rupee has depreciated sharply against the dollar, reaching new lows almost every week. The currency dropped by 9.6 percent on January 26, which was the biggest ever one-day decline since 1998. The interbank exchange rate closed at Rs 255.4 against the US dollar as against Rs 230.9 a day earlier.
This Wednesday, the rupee shed 44 paisa against US currency in the interbank market to close at Rs 285.40/ dollar.
“Fuel and power rate raises have put traders in a difficult situation,” complains Tariq Yousuf, president of the Karachi Chamber of Commerce and Industry. He says gas load-shedding during the winter added to the miseries of traders as the increasing cost of fuel impacted profit margins. Due to the Ukraine crisis, the price of LNG has skyrocketed. Natural gas is no longer available from the Gulf countries. Even though petroleum prices have come down in the international market, due to the heavy petroleum levies imposed on the IMF insistence the prices in Pakistan remain high.
For exporters, it is difficult to compete because of the increasing input costs. “Pakistani exporters are facing tough competition with regional countries,” says Tariq Yousuf.
Yousuf says Pakistan needs a long-term economic agenda for the revival of the economy. Political uncertainty, he says, is an obstacle to economic development. For continuity and consistency, he suggests that all stakeholders sit down and agree on key policies.
The internet shutdown caused heavy losses to the economy, especially to the fledgling freelancing sector.
Pakistan has been anxiously waiting for the release of the 9th tranche of around $1 billion from the International Monetary Fund (IMF). The IMF has held back the tranche for over eight months now on account of disagreement over fulfillment of agreed conditions.
The IMF has been in talks with the government since September 2022. A high-level IMF delegation visited Pakistan from January 31 to February 9, but Pakistan seemed unable to satisfy the mission and the IMF did not release the funds.
The IMF has been demanding implementation of several tough reforms, including higher taxes, subsidy cuts and devaluation of the currency. It has also asked for guarantees that friendly countries like Saudi Arabia and the UAE will provide matching loans to meet its needs for foreign currency. It wants Pakistan to have foreign exchange reserves of around $15 billion.
Pakistan has agreed to implement the IMF-suggested reforms. The 9th tranche is the last in the IMF’s $6 billion bailout package approved in 2019.
The IMF bailout is seen necessary for Pakistan to address its economic challenges. However, the reforms the IMF has proposed are unpopular and are seen hurting the economy.
Many economists have blamed the current economic predicament on political instability. The economy, they argue, has been deteriorating in part due to the protest campaigns called by former prime minister Imran Khan after his government’s ouster in April 2022. The inflation rate in the country is at its highest level (around 36.40 percent in April 2023) and the central bank has been forced to raise the policy rate to 21 percent, which is also the highest in the country’s history.
“The mishandling of the economy and high dependence on loans are some of the reasons for the Pakistani economy’s problems,” says businessman Majyd Aziz, president of the UN Global Compact Network Pakistan.
Aziz believes that the only solution for Pakistan to overcome the catastrophic situation is to engage in serious deliberations, curb unproductive expenditures and support the exporters.
In addition to the economic crisis, Pakistan is facing a worsening law and order situation due to increasing terrorist attacks and political uncertainty.
The recent countrywide internet shutdown caused heavy losses to the economy, especially to the fledgling freelancing sector. The blue-collar workers like riders of ride-sharing companies and courier companies were unable to operate after the arrest of former prime minister in Islamabad in a NAB case.
The social media websites and internet shutdowns were ordered by the Interior Ministry to control violent protests and attacks on public properties across the country, including in Karachi, where violent mobs ransacked public transport buses and damaged many vehicles on the streets.
The internet services are a vital part of the economy, especially in Karachi. The shutdown affected banks which rely on internet for smooth operations of their ATMs and online payments. Online shopping portals too suffered due to non-connectivity.
The shutdown affected millions of people in Karachi who rely on it for communication, education, health, business and other essential services. Some estimates suggest that the losses could run into billions of rupees per day.
The writer is a senior journalist, working for a news channel in Karachi. He can be reached at email@example.com