ECs suggest 3-tier exchange rate to lure dollars, improve FX reserves

January 14, 2023 (MLN): In order to improve foreign exchange reserves while luring dollars, the government should consider the option of a three-tier exchange rate against PKR, export-import bills, and remittances, Zafar Paracha General Secretary of the Exchange Companies Association of Pakistan (ECAP) said.

For instance, the government may offer PKR 240 per dollar to overseas Pakistani abroad and for receiving inward remittances. Resultantly, the volume of remittances will increase significantly and the grey market become less attractive. 

Meanwhile, the government may quote PKR 228 per dollar for export proceeds while the rate for importers would be on weighted average rates of the home remittance (overseas Pakistanis) and for exporters, the rates should be PKR 234 per USD.

The said measure will motivate the exporter and overseas Pakistani/exchange companies including the home remittance business and de-motivate the elicitor business and import also throughout the non-channelize business, he added.

In the current situation where the economic conditions are abnormal and banks are reluctant to open the Letters of Credit (LC)s for which various LCs are either pending or in the pipeline, he highlighted.

Since banks are flatly refusing to open the LCs for which various sectors and industries are facing problems and are badly affected.

In this connection, the Exchange Companies (ECs) feel their national responsibility and decided to reduce the burden on the government to help out by providing $50,000 each.

At present, the foreign exchange reserves held by the central bank stood at $4.34bn, down by $1.23bn during the week ended on January 06, 2023. This drop in reserves marked the lowest after February 28, 2014.

Meanwhile, the workers’ remittances in December 2022 clocked in at $2bn, decreasing by 20% YoY and 4.7% MoM compared to $2.5bn in December 2021 and $2.1bn in November 2022, respectively.

It was the fourth successive month wherein the workers’ remittances recorded a continuous month-on-month decline in inflows mainly due to the increasing spread between official and informal channels.

Currency experts are of the view that in the presence of smuggling activities to Afghanistan, Pakistan is losing around $2bn per month.

As a result, the local currency is enduring a rough ride, losing almost Rs23.30 rupees or 10.22% in FYTD.

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