Thursday Jul 28, 2022
Banks are offering different rates than the interbank market as the shortage of US dollar in the country is creating a dislocation in the foreign exchange market of Pakistan, Bloomberg reported.
Tresmark — a financial portal for treasury markets — noted that banks are offering higher spreads than the interbank market for import and export transactions as they are unable to cover import payments.
The financial portal has launched a new ticker to track the new rupee rate.
Pakistan is facing severe shortage of the greenback as a delay in the International Monetary Fund (IMF) bailout programme has raised concerns that the country could follow Sri Lanka into a default this year.
To curb dollar outflow, the coalition government also banned several imports that has resulted in a parts shortage at Toyota and Suzuki’s local units — who now plan to stop production for multiple days next month. Meanwhile, amid worsening external finances, the local currency saw its biggest drop since 1998 last week.
Raheel Ahmed, chief executive officer at VN Lakhani and Co, a Karachi-based steel importer, told Bloomberg that banks last week provided dollars to energy companies at about an 8% higher rate than the official closing rate.
“Importers who used to get dollars in a day for overseas payments are now facing a delay of more than a week,” he added.
Earlier, sources told the publication that the State Bank of Pakistan (SBP) is discouraging interbank trading due to a severe shortage of dollars. The currency has tested a series of record lows and is down more than 30% this year.
The SBP has stepped up measures to preserve foreign reserves. It asked commercial lenders to manage import-payment requests from their own inflows, such as exporter accruals and remittances.
However, Federal Minister for Finance and Revenue Miftah Ismail said that the rupee depreciation is expected to "vanish" soon.
“In a couple of weeks, you will see that the nation’s inflow of dollars will be more than the value of the country’s imports,” Miftah Ismail said in a discussion with think-tank Tabadlab on July 26. “Once that happens, pressure on the rupee will vanish.”
Pakistan is expected to receive $1.2 billion funding in late August after the IMF’s board meeting on the 24th of the month. It also anticipates another $4 billion in financing from bilateral countries, including Saudi Arabia.