Pakistan, despite the resumption of the IMF programme, was facing a dollar shortage with the rupee cumulatively falling by more than 4% against the greenback during the current week.

This was stated by former president Federation of Pakistan Chambers of Commerce and Industry, and Chairman Businessmen Panel (BMP) Mian Anjum Nisar in a press statement received by WealthPK.

Mian Nisar said the pressure on the rupee is due to a shortage of dollars in the market as there is a higher demand for the greenback after the government scrapped the ban imposed on the import of luxury goods.

Apart from these, the dollar's global strengthening is also leading to its appreciation against the rupee. The US dollar, which compares the value of the dollar to six important rival currencies, increased 0.04% to 109.73 after peaking at 110.79, a level not seen since June 2002, he added.

Other factors causing the rupee's depreciation include political unpredictability, low investor confidence, higher foreign exchange requirements due to flood-related expenses, a backlog of letters of credit payments, increased Afghan trade, and slower inflows, he said.

He cautioned that the default’s fear was not yet over but rather averted in the near-term, “while the medium-term risk persisted, as the cost of damage caused by the floods has surpassed the IMF loan disbursement.”

Mian Nisar said though the International Monetary Fund (IMF) programme was back, the confidence of the investors was not restored, “as the economic concerns in the mind of market participants have not ended due to multiple reasons.

The sufferings of the trade and industry in terms of high inflation, loss in employment, and lower profitability were not easing despite the restoration of the IMF programme, he said, adding: “The electricity concession for the exporters has been withdrawn, while petroleum levy on petrol and diesel have to be increased to Rs50/litre by January 2023, and perhaps after that the next step is to impose GST (general sales tax).”

The BMP chairman observed that like the rise in imports, remittances and exports did not increase to the required amount, thus causing a disruption in the supply-demand position of the dollar. He said that Pakistan’s foreign exchange reserves rose above $8 billion, reverting the threats of default that could have led to spillover into an economic crisis after the government managed to secure a much-needed loan from the International Monetary Fund.

On September 2, Mian Nisar said, the foreign currency reserves held by the State Bank of Pakistan were recorded at $8,79 million, up $1.166 million compared with $7,69 million on August 26. The central bank cited the receipt of $1,166 million from IMF under the Extended Fund Facility programme as the major reason behind the increase in reserves after nearly four weeks, he added.

Despite that, the rupee persisted in losing its value for the sixth straight session against the US dollar at the end of the week, as the country continued to suffer an economic hit caused by heavy floods, he said. The local currency closed at Rs 228.18 after losing Rs 2.76 in the interbank market, down in value from the previous close of Rs 225.42 when it lost Rs 2, while in the open market the rupee was hovering at around Rs 234 per dollar, he added.

The BMP chairman said Pakistan's currency had cumulatively fallen by Rs 9.21 against the greenback since the current week's trade began and was seemingly on the same pattern witnessed two months back, when the local unit hit Rs 239.37 on July 28. Now in the wake of severe floods, the initially estimated losses had accumulated in the range of $18 billion while Pakistan’s agriculture sector faced the worst blow. The agriculture growth might remain zero or slide into negative against the envisaged target of 3.9% for the current financial year 2022-23, he claimed.

The worst performance of the agriculture sector would put pressure on increased demand for commodities imports and if Pakistan failed to generate desired levels of dollar inflows it might create food shortages in the current fiscal year, he foresaw.  According to estimates, Pakistan would have to import additional cotton worth $2 billion during the ongoing fiscal year because it witnessed severe damages in the wake of flash floods - affecting those areas of Sindh where the cotton production was destroyed completely, he said.

The unprecedented floods, which have hit the economy in decades, are likely to cause a slowdown in economic growth, he said, adding that the widespread deluge has damaged standing cotton and rice harvests, which would also reduce the country’s exports and widen the current account deficit. Mian Nisar said that the resumption of the IMF loan programme did allay concerns about a scenario that would have been difficult to handle in the near future, and gave rise to hopes of unlocking money from other multilateral lenders and friendly countries.

Credit : Independent News Pakistan-WealthPk