SBP debunks dollar price cap blame for $3bn loss in exports, remittances

January 29, 2023 (MLN): The State Bank of Pakistan (SBP) has rejected the claims that capping the price of the dollar was the sole reason for the $3 billion loss in exports and remittances as there are several external and domestic factors that have contributed to the decline.

The global economic slowdown and moderating demand in international markets have been headwinds for exports. Furthermore, some major trading partners are undergoing a period of monetary tightening, causing the US Federal Funds rate to surge from 0.25% in March 2022 to 4.5% today.

Moreover, the higher inflation in the developed world has also reduced the purchasing power of consumers, making exports more expensive.

The decline in remittances is primarily due to the global economic slowdown, which has also led to a higher cost of living abroad, reducing the surplus funds available for remittances.

Additionally, with the resumption of international travel after the COVID-19 pandemic, some remittances have switched back to foreign currency cash transfers via overseas Pakistanis traveling to Pakistan.

In conclusion, the SBP has stated that the decline in exports and remittances in Pakistan is a result of multiple exogenous factors and domestic reasons and it would be inappropriate to attribute it to the exchange rate only.

Meanwhile, removing the dollar cap and switching to a free float exchange rate system has forced the Pakistani rupee (PKR) down the abyss as the currency lost 32.9 rupees in five straight sessions to settle the week’s trade at PKR 262.6 per USD compared to previous week’s close of PKR 229.67 per USD.

Within the last two sessions, the local unit has slashed its value against the US dollar by 31.7 rupees as a result of the decision pertaining to the removal of the dollar cap in the open market on Wednesday.

Later, on Thursday the currency also started taking a nosedive in the interbank market, reflecting the government’s clear intention to implement a free-floating exchange rate.

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