• After greenbacks, euros and pounds have also ‘disappeared’ from market
• Silence of friendly countries, IMF impasse driving market sentiment down

Despite proclamations of ‘all is well’ from the country’s financial managers, anyone who has recently tried to buy foreign currency will tell you that things are dire.

Dollars have disappeared from the open market, while a crisis in the inter-bank market has led to the stoppage of foreign payments. The country is unable to clear the dues owed to airlines or make payments for imported goods waiting at ports. Opening letters of credit (LCs) has become a challenge and transactions with the country’s foreign missions are also proving problematic.

The ascendant dollar is not a Pakistan-specific problem; according to Atif Ahmed, a currency dealer, the war in Ukraine has contributed to the strengthening of the US dollar.

“The economies of the European Union were badly affected by the gas and oil supply cut from Russia, but the US remained strong being self-sufficient. As a result, the dollar became stronger against the euro and the pound as trust in the greenback increased,” he said.

“When Russia asked oil buyers to pay in rubles, this caused demand for the dollar shoot up as countries hoping to buy cheap Russian oil have started buying dollars to convert to rubles,” Mr Ahmad said.

As this was happening, central banks of developed and developing economies around the world were increasing interest rates to curb inflation, but the higher interest rates coupled with astronomical prices caused even more problems, as evidenced by the cost of living crisis in the UK.

Then came the exchange rate fluctuations as other currencies reeled from the rise of the dollar.

When Dawn contacted currency dealers on the open market, most claimed that all foreign currencies were available with them, except the US dollar.

Exchange Companies Association of Pakistan (ECAP) Chairman Malik Bostan told Dawn that only dollars were are not available, while other currencies like the euro, British pound, dirham or Saudi riyal were still available.

However, a market survey revealed that even other currencies are not available at the quoted market rates, and nearly everyone is charging a premium on all major foreign currencies. In addition, only few large currency exchangers were found still selling other currencies like euros, pounds, while most dealers said they had none.

Market observers argue that with the advent of holiday season, demand has been driven up by the rush of travellers who are heading to destinations abroad, such as the US, Europe and Middle East. Despite their prices being on the higher side, market stakeholders claim that people buying currency to fulfil their travel needs is one of the factors responsible for the shortage of foreign currencies.

Here, the question that arises is why is the dollar so hard to come by? The most common answer points to the greenback’s strength; despite a year of global downturn, the US dollar has been on the rise.

In the calendar year 2022, the euro fell lower than the dollar, plunging to $0.98 in the first week of November. At the beginning of the year, the euro was priced at $1.14, but on Dec 17, it was valued at $1.06.

Similarly, the pound rate also underwent fluctuations that were exacerbated by a cost of living crisis in the UK. Although it began the year at $1.351, it was down to $1.21 by Dec 17, having touched the low of $1.11 on Nov 3.

But whether it is the currency’s own strength or the fact that it is being smuggled to neighbouring countries, the shortage of dollars has created multiple crises.

Many industries that rely on imported raw or semi-raw materials are finding it extremely difficult to continue operations. A number of businessmen are trying to sell out their business to leave the country as trust in government policies has also nose-dived.

State Minister Aisha Ghaus Pasha’s recent admission that all is not well on the economic front has also done little to address their concerns.

Commentators say those who still have capital have stopped investing in the local economy and are buying dollars and other supposedly reliable currencies. There is also little trust on the inter-bank exchange rate, which is being controlled by the government and the State Bank but is hardly followed.

The State Bank’s claim that default on external payments will be avoided also makes no difference to the business community, whose problems will not go away until the central bank’s forex shortage is addressed.

State Bank Governor Jameel Ahmed appears confident that the country will not default thanks to hopes of inflows worth $18 to 20 billion in this financial year. But the fact remains that Pakistan started FY23 with an estimated external financing need of $33bn — $23bn is debt and a current account deficit of $10bn.

The government now hopes to convince China for a rollover of about $13bn, and is also looking forward to getting back around $1.2bn that was provided to two commercial banks by State Bank.

Faisal Mamsa, CEO of Tresmark, told Dawn: “What the market heard last week was complete silence from friendly countries and their promised pot of gold. Instead, even the $1.2bn from Chinese commercial banks that was supposed to come back did not materialize,”.

A half-hearted statement from the International Monetary Fund (IMF), probably aimed only to placate markets, said there was progress on talks. It seems likely that Pakistan will celebrate the New Year with little to actually celebrate about,” he said.

Published in Dawn, December 20th, 2022