Removal of Import Ban Major Reason for Rupee’s Depreciation Against US Dollar: Experts

The decision of the government to allow imports of luxury items due to the pressure of the International Monetary Fund (IMF) is the main factor for the recent appreciation of the US Dollar against the Pakistan Rupee, experts told ProPakistani.

After closing at a historic low of 239.94 against the dollar on July 28, the rupee’s subsequent rally against the US dollar took it to 213.90 in the interbank market on August 16 (Tuesday). However, after the brief rally, the rupee has once again depreciated in recent days.

The rupee slid further depreciating by Rs. 1.26 against the dollar and closed at Rs. 221.92 in the interbank market today (Monday).

According to some forex market sources and economic experts, there are many reasons for the depreciation of the rupee, including the withdrawal of the import ban on luxury items, dollar smuggling to Afghanistan, and dollar hoarding.

ProPakistani contacted the Secretary General of the Exchange Companies Association of Pakistan (ECAP), Zafar Paracha, to learn about the reasons for the appreciation of the dollar in the forex market. Paracha highlighted three reasons which could be the main factors behind the recent depreciation of the rupee.

He said that there are reports that the dollar is being smuggled into Afghanistan as the dollar is a high-demand currency. There are also reports that Indian companies are purchasing dollars from smugglers at higher rates, he claimed. The decision of the government to lift the ban on luxury items on the pressure from IMF and other trading partners is also a factor that increased the demand for the dollar.

However, he said that due to the imposition of high import duty on these luxury goods, the smuggling of these goods has also increased. He mentioned that payments of smuggled goods are also being made in dollars.

On a query, Paracha said that before the recent appreciation of the dollar, the exchange companies were providing $20-25 million to the inter-bank market daily, but now the figure is down to $1-2 million.

Former Advisor to Finance Ministry and Senior Economist, Dr. Khaqan Najeeb, while talking to ProPakistani, said that government should do four things to release the pressure on the local unit.

Najeeb said that the government has to go on conservation of energy to reduce the energy import bill, which climbed to $23.13 billion during the last fiscal year. In this regard, the government should opt for scheduled load-shedding for domestic consumers but provide uninterrupted electricity to the export-oriented sectors. He added that the government should also control the budget deficit to decrease the pressure on the local currency.

The former spokesman also suggested the government should approach forex companies and should take a decision to sort out the issue.

While commenting on the issue, the President of Tola Associates, Ashfaq Tola, told ProPakistani that two factors are playing a major role in this regard. He said that the removal of the ban on the import of luxury items has triggered the demand for dollars in the market. There is also a perception that the dollar is being smuggled to Afghanistan, he added.

  • The IMF put pressure on Pakistan
    government to remove the ban on the import of luxury items. In this case the government should charge an exorbitant duty on the import of such items and meet the tax collection target as well as charge a premium to compensate the poor who have to pay high prices because of the shortage of dollars in the country.
    We cannot have our cake and eat it too!

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