The Cabinet Committee for Economic Revival has disregarded a proposal to halt Afghanistan from utilising Pakistan’s foreign exchange market to fulfil its currency requirements, which, according to a committee member, was pushing the value of the dollar to unprecedented levels.
Instead of taking immediate measures to address the haemorrhaging that contributed to the uncontrolled rise in the dollar’s price, the cabinet committee opted to reconsider offering regionally competitive prices to exporters, according to well-placed who spoke to The Express Tribune.
The sources revealed that during the inaugural meeting of the cabinet committee on Tuesday, Minister for Communication Shahid Ashraf Tarar raised concerns about Afghanistan’s impact on Pakistan’s exchange market.
They stated that Tarar believed that Afghans were purchasing currency from Pakistan to meet their own needs, thereby exerting pressure on the dollar’s price. Reportedly, he urged committee chairperson Dr Shamshad Akhtar to take action, as the dollar was not available in the market at a price of Rs340.
Shahid Ashraf Tarar declined to comment on this matter for the article.
The interim Afghan government is grappling with a shortage of foreign currency due to Western sanctions. It was widely assumed that Afghanistan was largely satisfying its trade-related requirements through transactions with Pakistan, a topic that is now under official discussion at the cabinet level.
The sources revealed that the communication minister wanted the committee to address immediate issues rather than delving into matters requiring long-term solutions.
On Wednesday, the rupee was traded at Rs304.5 per dollar in the interbank market and at Rs323 in the open market.
According to unconfirmed estimates, Afghan nationals held approximately Rs3 trillion of Pakistani currency, amounting to about one-third of the circulating currency. These holdings are primarily in Rs5,000 denominations, which are being used to purchase dollars from the market. In response to a question, interim Finance Minister Shamshad Akhtar ruled out the possibility of demonetising the Rs5,000 note on Wednesday.
Pakistan has agreed with the IMF not to directly or indirectly influence the exchange rate market as long as it operates smoothly, according to Dr Inayat Hussain, the Deputy Governor of the SBP, during a meeting of the Senate Standing Committee on Finance. The committee also explored the potential of reducing the freight bill, which was draining foreign currency from the country.
However, despite the communication minister’s concerns, the committee refrained from making a decision on this matter. Instead, they chose to further address issues related to other sectors. The committee reconvened on Wednesday and received presentations regarding proposals for capital markets and financial inclusions aimed at economic revival and facilitating business operations.
The interim PM established the committee to identify measures for economic revival within a two-week timeframe, covering critical areas such as fiscal discipline, investment, competitiveness, the energy sector, export enhancement, improving income and employment opportunities, and utilising the capital market for domestic resource generation, with a short-term focus. Following this, the chairperson initiated the discussion.
The sources indicated that the cabinet committee assigned the task of proposing measures for economic revival, particularly regarding export enhancement and competitiveness, to Minister for Commerce and Industries Gohar Ejaz, with a deadline of September 4, 2023.
In February of this year, Pakistan withdrew electricity subsidies for exporters under IMF conditions. Since then, exporters have been striving to reinstate these benefits. Ejaz proposed the need to implement a uniform gas tariff across the country. Gas prices in Sindh are lower than in Punjab due to the province’s priority access to indigenous gas. According to the sources, Ejaz also suggested analysing regional energy prices to enhance export competitiveness, following which Dr Akhtar tasked him with presenting proposals the following week.
Committee members also stressed the importance of restoring investor confidence and market sentiment to prevent a decline in stock market activity.
The sources revealed that Finance Advisor Dr Waqar Masood Khan proposed establishing an oversight committee to monitor the inflation situation. However, the chairperson did not form the committee.
Prime Minister Anwaarul Haq Kakar is anticipated to chair a meeting today (Thursday) to address the ongoing electricity billing crisis and approve a petroleum product price increase.
According to sources, Dr Waqar Masood was of the opinion that inflation was excessively high and required constant monitoring.
Published in The Express Tribune, August 31st, 2023.