KARACHI: Finance Minister Miftah Ismail said on Tuesday the pressure on the rupee will “vanish” in a couple of weeks.
In a one-on-one conversation with Mosharraf Zaidi, CEO of advisory services firm Tabadlab, Mr Ismail said the inflows of dollars into Pakistan will soon be higher than the outflow, resulting in a stable exchange rate.
“Nobody is happy with surgery, but sometimes it’s necessary,” he said while defending his policy of import curtailment to reduce the dollar outflow — a measure that may slow down economic growth and reduce tax collection at the import stage.
He repeatedly insisted that the fears of a sovereign default were overblown and that the policymakers knew “all the balls that (they) have in the air” i.e. expected inflows of the foreign currency in the next quarter or so.
“This is what I’m trying to do: moderate our purchases (imports) and not slow down our exports. For two to three months, I’m going to do that. (With every passing) week, I have a greater handle on the foreign currency,” he said.
The country burned $80 billion last year to buy foreign goods and services while earning only $31bn against its exports. The resulting gap in dollar liquidity has put pressure on the rupee’s value, which has been depreciating against the greenback.
The rupee lost 1.31 per cent value against the dollar on Tuesday to close at 232.93 in the interbank market. By the end of last week, the local currency had lost 22.7pc since Jan 1 and 10.3pc since July 1.
Mr Ismail said a policy plan will soon be in place. Imports will go down gradually and exports will be up “organically” within three months, he said.
“It’s no fun going to the world, to the International Monetary Fund (IMF), to the Chinese, to the Saudis, asking for money,” he said.
He said IMF inflows will materialise within weeks as there’s no chance of the Washington-based lender reopening the loan negotiations. “There’s no prior action that’s left really. The only thing is that they have a vacation for the (IMF) directors from Aug 1 to Aug 15. That’s why the meeting is a little later than I would’ve liked.”
Mr Ismail defended the idea of raising dollars by letting a “friendly country” acquire 10-15pc shareholding in state-owned companies with tradeable shares on the stock exchange. He blamed “irresponsible politicians” for scandalising a simple repurchase or repo arrangement that’ll bring in the much-needed dollars in the immediate term to fight the balance-of-payments crisis.
The government first requested the unnamed friendly country for dollar-denominated deposits to shore up foreign exchange reserves. But it turned down Islamabad’s request, saying the latter never returned the deposits, the finance minister said.
Subsequently, the friendly country showed willingness to buy shares in listed government-owned entities under a buyback agreement, which will give Islamabad the option — but not the obligation — to repurchase the same shareholding after a certain period of time at a 5pc higher rate.
“There’s not even (a question of) price discovery,” he said, noting that the friendly country “wants to helps us” and is giving Pakistan “a good deal”.
Published in Dawn, July 27th, 2022