Liberalizing the exchange rate is a prerequisite for the IMF in exchange for lending to Pakistan (AFP)
Approved Pakistani exchange companies On the abolition of the limits imposed on the exchange rate of the dollar against the rupee, which led to an immediate decline in the Pakistani currency in the free market, amid expectations of a greater decline, in light of the dollar scarcity crisis in the country that suffers severe financial difficultiesAnd the International Monetary Fund stipulates that the exchange rate be liberalized in return for a financial rescue.
And the Federation of Exchange Companies, which set a maximum limit for the exchange rate, decided to abandon the ceiling, according to what the Pakistani newspaper DAWN quoted, yesterday, Wednesday, according to a statement issued by Malik Bustan, the head of the union.
The rupee lost about 1% of its value, while the Federation of Exchange Companies has not yet determined the exchange rate for the dollar, which it said it would determine at a later meeting. The price of the dollar reached about 243 rupees in the open market yesterday morning, compared to about 240.75, last Tuesday, while it is being traded in banks at about 231.5 rupees.
Exchange companies aim to abolish the maximum exchange rate for the dollar in corporate trading to limit the activity of the black market for the currency, where the dollar is sold at a price that is 10% more than the official rate, and to restore dollar flows to the official banking system.
Bustan said, “A ceiling was set for the exchange rate in the past in order to achieve the interest of the country, but it became clear that its effects were negative… Instead of declining, the price of the dollar rose, and the US currency was not available in the market.”
He lamented that citizens who wanted to buy dollars for travel or to finance their education and health expenses were unable to do so and had to resort to the black market. “The price of the dollar will start to decline as soon as the gray market stops working,” he said.
In turn, the Secretary-General of the Federation of Exchange Companies, Dhofar Pracha, said that the cancellation of the ceiling on the exchange rate of the dollar came after the approval of the Central Bank of this step, adding that the Central Bank directed commercial banks to provide exchange companies with dollars.
The devaluation of the rupee comes amid pressure from the International Monetary Fund, which stipulates the liberalization of the exchange rate to proceed with a loan agreement for the country, which is suffering from one of the worst economic crises during the past years, amid diminishing foreign exchange reserves, as it decreased by 3 billion dollars to 4.56 billion dollars. Since the last monetary policy announcement on November 25, 2022, according to the Pakistani newspaper.
Talks are still underway with the International Monetary Fund to ease some of its conditions in exchange for the $6 billion bailout plan, which includes liberalizing the exchange rate, reducing energy subsidies and imposing more taxes.
The government fears angry reactions, especially in light of inflation and the economic deterioration that afflicts the living capabilities of most families, as the consumer price index reached 24.5% last December. The IMF had disbursed a payment of $1.1 billion last August. But talks between the two parties have wavered since then, due to Pakistan’s reluctance to introduce new taxes.