KARACHI: The open market is facing a severe shortage of the dollar while currency dealers’ associations shy away from releasing the actual exchange rate, which is suspected to be above Rs108.

Despite several meetings between the finance ministry, central bank and currency dealers, dynamics of the exchange rate in the open market registered little change.

The Forex Association of Pakistan (FAP) and the Exchange Companies Association of Pakistan (ECAP) have been issuing the exchange rate that is significantly less than the prevailing price of the greenback in the open market.

The FAP-provided rate of the dollar was Rs107.20-40, although the actual rate in different parts of the city was in the range of Rs108-109.

“B-category exchange companies could be selling the dollar at a higher rate, but we follow the rate that we provide,” said FAP President Malik Bostan. However, even major currency dealers were selling the dollar at Rs108 or above.

Most currency dealers belong to the B category and run bigger operations than their A-category counterparts across the country.

“No one is selling the dollar or any other foreign currency, which is the actual reason for the dollar shortage in the open market,” said Anwar Jamal, a currency dealer.

It was difficult to find even $1,000 in the open market as some A-category exchange companies said they did not have sufficient stocks of the greenback.

A few days earlier, ECAP Secretary General Zafar Paracha had revealed that the country lost $500 million in November alone because no foreign currencies reached the open market.

Foreign currencies that are sold in the open market are subsequently exported to Dubai for the import of the dollar. But November was the worst month in the history of the country in terms of the export of foreign currencies. The inflow from Dubai, which would usually be $20 million a day, fell to almost zero last month.

In contrast, demand for the dollar has risen while its inflow from abroad has significantly dropped. Remittances have been declining due to a changed economic scenario in the Middle East from where about 65 per cent inflows originate each year. Out of the total remittances of about $20 billion received in 2015-16, the contribution from the Middle East was about $13bn.

The drying up of the open market is creating hurdles for thousands of overseas students and people plaaning to go abroad for business and religious reasons. In addition, gold importers also suffer because they have to buy dollars from the open market as banks don’t open letters of credit for the import of gold.

Parents who send money to their children studying overseas are worst affected because they are willing to buy dollars at any rate. This is one of the reasons that the open market has no single, constant price of the dollar. The exchange rate varies within a city as well as in different parts of the country.

The impact of the shortage of the dollar in the open market has started affecting the deposits of scheduled banks. Currency dealers deposit additional dollars in banks that cannot be sold in the open market.

Foreign exchange reserves of scheduled banks slipped to $4,991m from $5,040m in the last week of November. Banks will face further problems if dollar inflows from Dubai remain dry in coming weeks.

Published in Dawn, December 11th, 2016