Pakistan’s chokehold on its forex reserves may keep the rupee steady for now, but it is hurting local and foreign businesses which are forced to close and reopen operations due to a lack of access to US Dollars in the country, reported Bloomberg.
Due to a lack of inventory, the assembler of Suzuki vehicles is closing motorcycle production for 16 days. Last month, Toyota Motor Corp. closed its unit for two weeks while Sitara Peroxide Limited, a chemical manufacturer, halted production for four weeks.
Following the receipt of billions of dollars from the International Monetary Fund and other creditors in July, Pakistan is focusing on currency stability as it works to recover from its historic debt crisis. Meanwhile, companies are finding it difficult to secure import permits for their manufacturing needs, and cargoes are still held in ports as the government reduces demand for dollars to avoid depleting the country’s forex reserves.
The chief executive officer of Alpha Beta Core Solutions Pvt Ltd, Khurram Schehzad commented, “Absolutely there is a dollar shortage. Companies will continue to operate at bare minimum capacity. Imports will normalize eventually, but it can take six more months”.
Meanwhile, a senior economist based in the United States, Patrick Curran, told Bloomberg, “The authorities had been relying on import controls to curb dollar demand and keep reserves stable. Rupee depreciation will be required to restore balance in the FX market, or else dollar shortages will continue to weigh on growth”.
Pertinently, the PKR has stabilized in recent months following a devaluation in January and a selloff in May, while foreign reserves have more than doubled to $8 billion since the IMF bailout. The rupee, which traded at 291 per dollar on Tuesday, is expected to fall to a historic low of 300 by the end of the year, according to Standard Chartered Plc and Natixis SA.
Ever since the prevalent crisis hit Pakistan last year, factories have been forced to close for weeks at a time as the dollar drought prevents them from importing raw materials. Resultantly, sectors ranging from steel to motor vehicles are seeing an abrupt decrease in manufacturing, with the auto sector working at just ~40-50 percent of full capacity.
According to Bloomberg data, Suzuki’s Pakistan unit reported its largest quarterly loss in at least a decade during the three months ending March.
Companies claim they are having difficulty obtaining letters of credit. While the central bank abolished all import restrictions in July, it also ceased supplying dollars to banks to meet the import needs. It bears mentioning that lifting the import restrictions is an IMF pre-condition.
