Pakistan: Rupee witnesses sharp decline due to dwindling foreign reserves

Karachi [Pakistan], May 17 : In the wake of the dwindling foreign reserves and the inflows taking more than expected time to support the exchange rate, Pakistan's Prime Minister Shehbaz Sharif chaired a meeting with the Exchange Companies Association of Pakistan (ECAP) on Monday to halt the rupee's free fall.
A Dawn report said on Monday that when the PML-N-led coalition government took over on April 11, the dollar was valued at Rs182.3, and since then, the rupee had lost Rs11.4 or 6.2 per cent of its value.
"It is the open market or exchange companies that increase the dollar rates. In fact, the commercial banks have been increasing the rate," ECAP Chairman, Malik Bostan told the prime minister in the meeting.
The importers are opening more LCs due to the uncertain exchange rate while the exporters are surrendering fewer export proceeds, causing a shortage of dollars, he further said.
In the previous meeting with the adviser on finance last Saturday, the representatives of exchange companies proposed to ban all imports except essential items. Experts and analysts have suggested in their reports that any attempt to repeat the previous mechanism to bring down dollar prices would be counterproductive for the economy. The head of research said that the exchange rate should be based on market-driven forces, adding that the government must avoid adopting any artificial mechanism to improve the rupee value.
During the meeting, it was also suggested that entire markets across the country should be closed down before the sunset, which would save a substantial amount of energy, reduce the import oil bill and the supply to the general public could be restored, reported Dawn
Prior to Shehbaz Sharif's meeting with Boston, finance minister Miftah Ismail had discussed in detail the exchange rate situation with an ECAP team on Saturday last.
Pakistan expects to get a loan from the International Monetary Fund, a rollover of $2.3bn from China and help from Saudi Arabia. However, the hope to raise dollars from the international market through the launching of Sukuk bonds is not getting support due to the weak external accounts of the country.
The rising oil prices have already doubled the oil import bills, but the overall imports are also at a record high. In April, imports increased by 72 per cent, leaving no room for the government to improve its external balances while the foreign exchange reserves of the central bank have touched $10.3 billion, the lowest since June 2020.
According to a Dawn report, the PM would hold another meeting with Bostan and the SBP governor on the exchange rate today. This will be the third meeting held by the government on the issue in four days and reflect the growing frustration in the power corridors of Islamabad, the report said.
The fast depletion of the foreign exchange reserves was the result of Pakistan's inflation of twin deficits, a lack of foreign currency inflows, and a sharp increase in the foreign debt servicing obligations
Inflation in Pakistan entered the double-digit mark in July, the biggest surge in nearly six years.