KARACHI: The regular appreciation of the rupee has compelled exporters to sell their dollars in the banking market, which has helped the exchange rate remain stable, said sources in the financial sector.
The financial sector also noted another confidence boost with hopes attached to the Special Investment Facilitation Council (SIFC), as business delegations from Gulf countries have started visiting Pakistan to explore opportunities.
“The daily depreciation of the dollar is the root cause of selling dollars by exporters since even a 10 paisa [difference] matters for the huge inflows of export proceeds,” said Atif Ahmed, a currency dealer in the inter-bank market.
The market also witnessed forward selling of dollars by exporters.
Surge in SBP’s reserves and positive IMF responses boost confidence
“Banks are confident that exporters are not holding their dollars for better returns,” added Mr Atif.
The surge in the State Bank of Pakistan’s reserves, positive responses from the IMF, and increasing hopes for a better result from SIFC have built confidence in the financial market.
“Business delegations from Gulf countries are visiting Pakistan, exploring opportunities for investments, which shows confidence in the newly formed SIFC. No decision of SIFC is challengeable in any courts in the country, which is another confidence-boosting situation for foreign investors,” said a known businessman who interacts with foreign business delegations.
He mentioned that corporate farming for foreign investors has started in Pakistan, with a number of blocks allocated for crop cultivation in Punjab and Balochistan. He said agriculture holds great attraction for foreign investors, particularly from Gulf countries.
Currency dealers in the open market stated that the exchange rate is stable, and there is no Hundi and Hawala transactions anymore.
When asked why the rupee is gaining against the dollar, the secretary general of the Exchange Companies Association of Pakistan, Zafar Paracha, replied that SBP’s increasing reserves of and the positive response from the IMF are supporting the local currency.
“The single exchange rate has produced good results and helped stabilise the exchange rate. If the crackdown against illegal currency business continues and smuggling is completely blocked, stability will remain intact,” said Mr Paracha.
He mentioned that the single exchange rate has enabled exchange companies to sell their maximum amount of dollars to the banks.
“We are selling $300 million to $350m per month to banks,” said Mr Paracha. Even if the average monthly selling of dollars remains at $300m, the banking market would receive more than $3.5 billion at the end of the fiscal year.
Bankers stated that the massive decline in twin deficits, trade and current account deficits, is helping economic managers keep paying for debt servicing. The financial sector believes that the current account deficit would not exceed $4bn during this fiscal year FY24.
Published in Dawn, January 9th, 2024
