KARACHI: The first working day of the interim government saw the dollar price jump by Rs3 to Rs291.51 in a single session in the interbank market on Tuesday.

Currency dealers said the market felt more uncertainty with the new caretaker set-up which put pressure on the local currency.

“Fear is high that the interim government, which is free of any political pressure, will rigorously follow the IMF dictations for the exchange rate regime,” said Atif Ahmed, a currency dealer in interbank market.

The dollar was traded at Rs291.51 on Tuesday, an increase of or 1.04 per cent, compared to the previous price of Rs288.49 on Aug 11.

Bankers said the buying of dollars for the purpose of imports is rising and will do so in the coming days since the government had reached an agreement with the IMF to lift all restrictions on imports.

The last PDM government had put tough restrictions on imports which saved $20-25 billion in FY23 compared to the preceding year’s imports. The import policy of the previous government had been widely criticised due to a massive decline in economic activities which resulted in a fall of GDP growth to just 0.3 per cent in FY23.

“The opening of imports will surely increase the demand for dollars in the coming days. Today is a reflection of this high demand and higher dollar prices,” said Exchange Companies Association of Pakistan General Secretary Zafar Paracha.

The foreign exchange reserves of the State Bank stand at about $8bn while the country needs $25bn for debt servicing in FY24. The market players cast doubt on the interim government’s ability to handle the situation as per the IMF conditions.

Currency experts expressed surprise that for the $3bn IMF bailout programme, the country would have to spend more than $20bn on imports in FY24, in addition to last year’s imports of about $49.5bn. They were of the opinion that the exchange rate would remain under pressure during the entire fiscal year due to imports.

“One more aspect is that the previous government did not allow profits and dividends to go out of the country which is discouraging for the foreign investors,” said Mr Paracha.

The State Bank data shows that outflows of profits and dividends declined by $1bn in FY23 compared to the preceding year which means profits were held back in the country.

However, a number of analysts believed that such profits were in the range of $3-4bn, but no evidence was available.

Currency experts in banks said the declining trend of remittances and exports was also a reason for the depreciation of the local currency. In FY23, the country lost about $8.2bn due to a decline in remittances and exports.

The trend continued in July FY24 as the remittances fell by 19.3pc (a loss of about $500 million) compared to July FY23. Remittances in July this year stood at $2bn compared to $2.5bn during the same month last year.

The open market also reported appreciation of dollar but currency dealers said it was a reflection of upward trend in the interbank market.

The dollar appreciated by R4 to Rs300 in the open market from Rs96 on Aug 11. However, the official rates provided by the exchange companies are not considered as the market rate. The dollar was traded at Rs302 in the last session on Aug 11.

Published in Dawn, August 16th, 2023