Tag: grey market

  • Remittances to Pakistan decline by 19.3% to $2 billion in first month of fiscal year

    Remittances to Pakistan decline by 19.3% to $2 billion in first month of fiscal year

    Pakistan has experienced a notable decline in remittances during the first month of the current fiscal year, as data released by the central bank reveals a year-on-year drop of 19.3 per cent, amounting to $2 billion. This concerning trend was further accentuated by a month-on-month reduction of 7.3 per cent.

    In the month of July, remittance inflows from Pakistanis residing abroad amounted to $2.2 billion. The distribution of these remittances showed that Saudi Arabia held the top spot with a contribution of $486.7 million, followed by the United Arab Emirates with $315.1 million. The United Kingdom and the United States of America followed closely with $305.7 million and $238.1 million, respectively.

    Economic analysts anticipated this decline in remittances for the month of July, given the post-Eid ul Adha period. The reduction was expected, as Pakistani expatriates tend to increase their cash transfers back home during festive seasons. Interestingly, it seems that some of these remittance inflows have been diverted to the grey market due to more favourable exchange rates for dollars.

    Samiullah Tariq, the head of research at Pak-Kuwait Investment Company, shed light on this shift: “In my view, as this was the month after Eid ul Adha, flows were relatively subdued. Some Pakistanis are opting for unofficial channels to transfer money.” The continuous devaluation of the Pakistani currency is also impacting investment sentiment among overseas Pakistanis, discouraging them from contributing more significantly to the economy.

    The recent release of these remittance statistics coincides with the International Monetary Fund’s (IMF) approval of a $3 billion bailout package for Pakistan. The nation’s economy had been teetering on the edge of default due to mounting debt obligations. Governor Jameel Ahmad of the State Bank of Pakistan (SBP) reassured that the SBP remains committed to upholding its obligations, including maintaining a controlled difference between the interbank and open market exchange rates, as specified in the agreement with the IMF.

    Fahad Rauf, the head of research at Ismail Iqbal Securities, voiced his concern over the decline in remittances: “The extent to which remittances have declined is indeed worrying. Unofficial channels offering higher rates have played a role in this scenario.” He also highlighted the SBP’s efforts to attract more remittances through proposed changes in incentive schemes, including a 50 per cent increase in the reimbursement rate for Saudi Riyal conversions.

    The SBP’s latest monetary policy statement forecasts the current account deficit for fiscal year 2024 to range between 0.5 per cent and 1.5 per cent of the gross domestic product. This projection takes into account both evolving domestic and global economic conditions. The SBP remains optimistic about the prospects of multilateral and bilateral inflows following the IMF’s stand-by arrangement, which is expected to bolster external buffers and address short-term external financing requirements.

    As the nation navigates through these challenges, the market-determined exchange rate will continue to play a pivotal role as the first line of defence against external shocks, further supporting the buildup of reserves. With a cautious eye on global commodity prices and a moderate domestic economic recovery, Pakistan aims to manage its imports and strengthen its economic stability.

  • Exchange companies remove cap on dollar-rupee exchange rate to abolish grey market

    Exchange companies remove cap on dollar-rupee exchange rate to abolish grey market

    The exchange companies have decided to stop artificially keeping Pakistani rupee (PKR) overvalued against US dollar in the open market and let the rupee-dollar exchange rate depreciate to its actual value.

    Pakistani rupee may steadily lose value until it reaches the level of the grey market in a few days, according to reports.

    The black market price of local currency is currently between Rs250 and Rs260 per US dollar, although traders had artificially kept the rate at Rs238 till Tuesday.

    “The association has decided to remove cap on rupee-dollar exchange rate,” Exchange Companies Association of Pakistan (ECAP) President Malik Bostan said in audio and video messages after chairing a zoom meeting on Tuesday.

    “The move would help eliminate black currency markets, increase flow of foreign currencies to the dealers and available to public (for international travelling, education and hospital fees and etc.”

    He said that in the interest of the country, traders voluntarily opted to restrict the exchange rate. But the choice led to an underground market for cash that seemed to be more detrimental to the country.

    “People were buying dollars from open market (at Rs238) and selling in black market (at Rs250-260), making it a business to mint profit,” he said, adding no one was coming to the dealers’ counters to sell foreign currency which resulted into drying up supplies on the other hand.

    According to ECAP General Secretary Zafar Paracha, the decision to abolish the exchange rate ceiling will aid in the eradication of the black market and restore the inflow of foreign money from the illicit system into the legitimate one.

    Additionally, the government has been urged by the International Monetary Fund (IMF) to relinquish control over the rupee-dollar exchange rate in the interbank market and allow market forces to decide the rate while taking the demand and supply of US dollars into account.

    Accordingly, it is anticipated that the local currency would also reach Rs250-260 in the interbank market as compared to the US dollar.

    Pakistan technically has three currency markets, including the interbank, open, and black markets. As a result, each of the three markets is providing a different rate.

    The black currency market was formed after Finance Minister Ishaq Dar tried to keep the currency artificially overvalued at Rs180–200 to the US dollar after returning to the ministry in late September 2022.

    The currency, therefore, appreciated to Rs218 in the early days of October from its all-time low of Rs240 the first time in late July 2022 and the last time in September 2022.

    Dar opened an investigation against the commercial banks, blaming them for market forces that had artificially devalued the currency to Rs240 per dollar.

    Governor State Bank of Pakistan (SBP) Jameel Ahmed said that the central bank has completed the investigation against 13 commercial banks allegedly involved in rupee-dollar parity manipulation.

    “The central bank is all set to take action against them in days (instead weeks and months). The action could be fiscal or regulatory one,” he added.

  • Exchange companies suggest higher US dollar rate to increase remittances

    Exchange companies suggest higher US dollar rate to increase remittances

    The government has been advised by the Exchange Companies Association of Pakistan (ECAP) to “set” the dollar rate to lessen currency market volatility as the country fights a severe economic crisis and declining foreign exchange reserves.

    The general secretary of ECAP Zafar Paracha said in a statement on Monday, “It is advised to fix the rupee/dollar exchange rate for export-import bills and remittances”. He further said these remittance proceeds could be received by banks and money changers at a fixed rate of Rs240 per dollar.

    Pakistani rupee closed at Rs228.34 per US dollar, compared with the previous close of Rs228.15 in the interbank market. In the open market, the local unit was trading at Rs238.75 against the greenback.

    Paracha suggested the government to set the rate of Rs240 per dollar for overseas Pakistanis and for inward remittance.

    He expects that by making the change, the official channel would be strengthened, remittances would increase, Hundi/Hawala would decline, and eventually, the grey market would vanish.

    According to Paracha, the exchange rate between the dollar and the local currency has hit Rs267 to Rs270. The offer could be made at Rs228 against/ the dollar in order to obtain exporters’ revenues. Additionally, the rate for importers would be determined by the weighted average of the exporter and home remittance rates. He said that it would help remittances and exporters.

    It will boost the nation’s foreign exchange reserve, encourage exporters to bring dollars, and strengthen the exchange companies’ remittances division.

    The country received $14.1 billion in remittances during the first six months (July-December) of the current fiscal year, a decline of 11.1 per cent from a year earlier.

    As of January 6, Pakistan’s foreign exchange reserves at the State Bank of Pakistan fell by $1.2 billion to $4.3 billion, just enough to fund three weeks’ worth of imports.

    Due to significant repayments of foreign debt and a lack of external funding, which have severely reduced Pakistan’s foreign reserves and resulted in ongoing dollar shortages, the country is currently facing a balance of payments crisis.