KARACHI, Aug 24: The government has decided to let the dollar lose some extra weight as keeping it stable for the exporters is becoming less beneficial and more expensive for the economy at large.

Sources close to the Ministry of Finance say the dollar may be allowed to trade in a broad range of Rs58-59 by the end of this quarter: On July 12, the State Bank stopped defending the dollar at Rs60 and set a new level of Rs59.50-59.60 for this purpose. Since then the SBP has been keeping the greenback stable at this level for the exporters by mopping up excessive inflows of foreign exchange from the inter-bank market.

“But now it seems that the government wants to see the dollar lose some extra weight,” says an official source, adding that the SBP may be asked to stop defending the greenback at the present level.

Finance Minister Shaukat Aziz has been on record saying that the dollar can fall as low as Rs55 if the SBP completely stops defending it for the benefit of the exporters.

But in late July he had assured top textile exporters that the US currency would not be allowed to slip below Rs59 for the time being.

“Things have changed since then,” said a source close to the Ministry of Finance. “Pakistan continues to get large inflows of foreign exchange through home remittances plus sizable trenches of loans from multilateral lending agencies like IMF, World Bank and ADB. And more inflows are in the pipelines.”

Bankers and analysts say keeping in view the inflows that the country is attracting it should not be surprising if the dollar is allowed to shed some value in the coming days.

“Besides keeping dollar artificially high for a long time is not going to be very beneficial,” says treasurer of a leading foreign bank. “If a strong dollar provides some comfort to the exporters it makes imports costlier and deprives the nation of the benefit of reduction in rupee value of the foreign debt.” Sources close to the Ministry of Finance say realization of this fact has increased at the government level so an immediate fall in the dollar value cannot be ruled out.

But some top bankers with political bent of mind add another big reason for this: “It is natural for the military government if it tries to get maximum political mileage by keeping the dollar as weak as possible before elections,” remarks head of a foreign bank. “Buildup in foreign exchange reserves and rupee stability can be cited as two main indicators of the economic success.”

Gross foreign exchange reserves have more than doubled to $7.3 billion from $3.2 billion at end-June 2001 and the dollar has lost about 6.3 per cent of its value against the rupee in the last fiscal year.

Bankers say another important factor that calls for stability in rupee value is rising tension on Pakistan-India borders. They say if the dollar is allowed to touch Rs59 within a few weeks it would act as a big morale booster for the nation at a time when Indian forces have apparently taken an aggressive posture on the borders.