KARACHI: The US dollar appreciated by 60 paisa in the open market against the rupee during the last two days that could escalate the impact of yuan devaluation on Pakistan.

Experts project increase in import of Chinese products and additional advantage to China over Pakistan in the global market. The trade balance is already in favour of Beijing. The local industry complains of dumping of cheaper Chinese products in the market.

Despite several measures by the State Bank to ensure smooth supply of dollar in the open market, the greenback remained bullish. Currency dealers said that the demand has been high and they pointed towards traditional buying at this time of year for Haj, overseas students and some traders.

Since the imposition of withholding tax (WHT) on banking transactions, anot­her group of buyers appeared in the open market. Traders protesting against WHT are buying dollars, making payments through it and saving it in their bank lockers.

Experts also note that over three per cent devaluation of yuan in the last three days would boost dollar demand, since Chinese goods worth millions of dollars are being smuggled into the country and their payments are made in US currency.

Calculating the negative impact of yuan devaluation over Pakistan’s exports, analysts said the trade balance would further move in favour of China.

Both the countries are competing with each other in European and US markets in textile based products, which generates more than 50pc export proceeds for Pakistan.

The textile lobby is trying to influence the exchange rate forcing the government to devalue the local currency to make their products competitive in the global markets.

However, some experts said the devaluation of local currency will not bring any positive result since the two other competitors, India and Bangladesh have much appreciated their currency against the rupee.

Pakistani currency is almost half of the Indian rupee and Bangladeshi Taka is more than 20pc higher. These countries have not devalued their currencies to compete with China.

Currency experts said the exchange rate is stable in inter-bank market, while in the open market where the supply has been improved shows an erratic dollar prices.

Last week, the secretary general of Exchange Companies Association of Pakistan mentioned that daily direct inflows from Dubai were $2 million.

State Bank has allowed the currency dealers to directly import dollars against export of other foreign currencies in their accounts. Earlier, they had to surrender dollars to a bank and used to receive in Pakistan but it was consuming time and creating hurdles in quick supply to open market.

However, the decision did not pay off.

Currency dealers said there is no shortage of dollar in the market, yet it is appreciating against the local currency.

What is more concerning is that premium to buy greenback from open market has substantially increased to Rs1.50 per dollar. This will pave the way for remittances through non-banking channel allowing Hundi system to revive.

After a decade old effort to use banking channel for 100pc remittances created records. In FY15, the country received $18.2bn remittances. Higher premium could attract many overseas Pakistanis to get more local currency by sending dollars through Hundi system.

Published in Dawn, August 15th, 2015

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