Dollar thumps rupee to ground on demand, pressure on forex

KARACHI: The rupee is still under constant pressure against the dollar for the last three consecutive sessions as it closed at Rs 110.10 for buying in the open market transactions. This continued downward rally of the rupee against the dollar is greatly contributed to Pakistan’s meeting all prior conditions by the international donors for qualifying for a loan of up to $8.15 billion including $7.15 billion from Asian Development Bank in the next three years, financial experts and economist were of the view. Finance managers at the helm of affairs have already said Pakistan met all prior actions for a fresh bailout package. State Bank of Pakistan (SBP) also advised not to intervene in the foreign exchange market and now the exchange rate mechanism depends on supply and demand position. This action has paved the way for approval of loan. Pakistan requested for $7.15 billion assistance from ADB for projects related to education, agriculture, energy, health and transport sectors. Around $2.28 billion would be spent on energy sector, $1.76 billion for transport, $1 billion for agriculture sector and rural uplift projects, $250 million for education sector, $120 million for health sector, $1.68 billion in clean water and urban uplift projects and $200 million for Information Technology-related projects It is said that ADB would also provide funds for remodeling of canal system in Punjab and uplift of educational system in Sindh. The international donors have already asked basis points increase in discount rate, a rate at which the SBP lends money to commercial banks. Pakistan would also fulfill the condition of increasing power tariffs to reduce subsidies and has already withdrawn subsidies on great extent for industrial sector by increasing tariffs up to 97 percent with significantly reducing subsidies for the commercial consumers in couple of years. The power tariff for industrial, commercial and domestic consumers (under some conditions) remained higher however there has been raise in domestic consumer tariff by 10 percent in offing. State Bank of Pakistan (SBP) on Thursday said that tax to GDP ratio fell to 12.5 percent in fiscal year 2016/2017 despite improvement in revenue collection during recent years. International Monetary Fund had advised Pakistan for raising petroleum taxes and withholding taxes for increasing tax-to-GDP ratio to improve key macroeconomic indicators. The IMF and other donors have been steadfast on their stance and succeeded in pressing Pakistan to meet its conditions for levying tax on the agriculture sector, enhance energy price and ensure implementation of general sales tax. The IMF also put a proposal before Pakistan that surplus cash crops would be kept under the IMF supervision. The IMF has been asking more than once amendments to State Bank of Pakistan’s act in order to provide the central bank with operational independence. Pakistan has already failed raising tax revenue from the present 12 percent of gross domestic product (GDP) to 15 percent by 2016, which is peril for our economy, said Fazal Ahmad, an economist and currency expert in Houston. The payment in dollar for edible oil imports usually increases in September to November on back of increase in edible oil and vanaspati ghee domestic consumption in winter, he maintained. The country’s foreign exchange reserves for payment of export bills and bills on oil, commodities and major raw industrial materials’ imports are also under immense pressure as demand for dollar has increased. Industrial sector’s view: In order to manage fiscal imbalance, the government has to give incentives to export-oriented sectors instead of moving to donors for more loans on humiliating repayment conditions. For this purpose, the government has to focus on investing in energy solutions, enforcement of law and order, lowering tariffs on smuggling-prone items and increasing the share of direct taxes in revenue to achieve key economic targets, observed textile and leather sectors experts. The rising risk perception about investing in Pakistan is hitting hard the foreign direct investment (FDI) that fell sharply in recent months and needs to be tackled through a comprehensive policy approach by involving real stakeholders. There is a need to work together for the betterment of the country, said Pakistan Tanners Association Chairman Agha Saiddain while stressing the need for the government to make the resolution of energy crisis as its top priority in order to increase exports and avert balance of payment crisis. The dwindling value of rupee has already caused an increase of about Rs 357 billion in country’s debt without borrowing a penny and if government could not bring stability in currency rate, business and economy would plunge into further problems. The government has to remove the bottlenecks discouraging foreign and domestic investment, including energy shortages and war on terror after effects, besides reducing cost of doing business and announcing consistent policies. The country’s reliance on costly thermal power is jacking up the cost of production and import bill. The country needs an urgent shift in its energy-mix in favour of hydel power and local fuels. Uninterrupted and affordable power supplies can turn Pakistan into an economic powerhouse. A number of sectors in Pakistan including infrastructure development, coal, energy, agriculture, livestock, leather, textiles and pharmaceutical offer lucrative investment opportunities to foreign investors but unfortunately due to absence of required funding for a proper and well-tailored marketing strategy these opportunities are unattended even today. Pakistan Yarn Merchants Association member Ghulam Rabbani said cumulative FDI inflows during past 10 years stood at $32 billion, including privatisation proceeds of $3.1 billion. Because of poor economic policies of the government the foreign private capital flows witnessed a negative growth against the world average surge of 22 percent. The claims of present government of breaking the begging bowl have been failed and government was all set to receive loans from international donors. State Bank already said that tax to GDP ratio fell to 12.5 percent in fiscal year 2016-2017 despite improvement in revenue collection. Fiscal 2017-18 would also remain lower than expected tax to GDP. Published in Daily Times, December 13th 2017.