KARACHI: The higher dollar influx in Ramazan has compensated for the lower inflows through exchange companies in February, currency dealers said on Saturday.

“We sold about $300 to $350 million to banks in March, which is significantly higher than the preceding month,” said Zafar Paracha, General Secretary of the Exchange Companies Association of Pakistan.

They said remittances through banking channels would also increase as overseas Pakistanis sent additional amounts to meet Eidul Fitr-related expenses for their families and for charity and zakat purposes.

Currency dealers said they sold around $3.2 billion during the first nine months of the current fiscal year, which brought exchange rate stability. At the same time, the higher inflows in the banking market helped the State Bank of Pakistan to buy and keep its forex reserves above $8bn, while the IMF wants it to increase these holdings above $9bn by the end of FY24.

Financial sector sources said that despite the higher inflows and stable exchange rates, there is uncertainty in the Ministry of Finance. The biggest problem is dealing with the growing debt servicing without increasing the foreign debt burden, which financial experts consider impossible. The new finance minister has said the country would need to approach the IMF for a longer and larger Extended Fund Facility.

The IMF loan approval is considered the opening of the gates for other inflows.

Some financial experts said that political uncertainty remains despite the installation of a new government in Islamabad after the general elections. The impact of this uncertainty is felt in different segments of the economy. Foreign direct inflows have further reduced, domestic investment, particularly in the industries, remained insignificant, bank advances to the private sector plunged, and LSM is still negative. This situation suggests that the confidence of domestic and foreign investors has yet to be restored.

Published in Dawn, March 31st, 2024

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