Pakistan has committed a market-determined exchange rate with the International Monetary Fund (IMF).
The Memorandum of Economic and Financial Policies issued by IMF states that Pakistan has reaffirmed a market-determined exchange rate, emphasizing that in line with the Foreign Exchange Regulation Act, banks and exchange companies (ECs) are at liberty to determine exchange rates between the Pakistani rupee and foreign currencies free from any formal or informal influence.
Supported by law enforcement agencies, the government has taken robust action that helped ease pressures, but Pakistan recognized that law enforcement and administrative actions alone are inadequate to sustainably alleviate external pressures.
Specifically, the government will refrain from providing guidance or expressing preference to market participants regarding the exchange rate or regulating demand for FX through (either formal or informal) administrative action.
To enhance transparency and oversight in the open market, Pakistan has initiated structural reforms in the EC sector, which will lead to stronger and better-managed ECs serving the legitimate FX needs of the public, including via banks establishing wholly-owned ECs.
More broadly, the government also committed to further strengthen transparency and efficiency in the FX market by
- Publishing daily exchange rates in the interbank and open market as of December 2023,
- Finalizing preparations for transitioning to a new trading platform for spot transactions connecting all banks, with the system scheduled to go live by end-January 2024, and
- Undertaking a feasibility study to conduct FX purchases and sales via auctions, including the publication of auction results, by end-March 2024.
Although only banks and exchange companies are authorized by the SBP to carry out foreign exchange business in Pakistan, the existence of informal markets and channels is a reality.
In pursuit of its mandate to implement an exchange rate policy, SBP is developing a framework to monitor pricing and broader developments in informal markets and publish a report with findings by end-March 2024.
To safeguard the integrity of the foreign exchange market, any abusive or anti-competitive behavior by market participants will be addressed through enforcement of the relevant regulations and the applicable laws.
The report states that Pakistan has also committed to the IMF to develop a plan to strengthen our internal control systems in this area, including updates to our collateral policy and counterparty eligibility policy, in line with recommendations from the 2023 Safeguards Assessment with implementation starting by end-December 2024.
