Pakistan rupee set to come under more pressure

Though government denies it, analysts believe national currency will be further devalued. (AFP)
Updated 27 May 2018
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Pakistan rupee set to come under more pressure

  • Exchange companies are required to maintain record of all buy and sell transactions equivalent to $500
  • Dollar supply declines from $3m per day to only $1m as buyer and seller decline to share identification data

KARACHI: The Pakistan rupee could face further pressure this week, in the midst of the country’s chronic foreign currency shortage and speculation of a third currency devaluation, analysts said.
The currency, which has been exposed to rising external financing requirements and lower remittances, touched 119.05 rupees to the dollar on Friday, closing at 118.70 rupees to the dollar on Saturday in the open market.
“People think that in coming days the rupee would be further under pressure due to increasing demand for the dollar so they start buying anticipating a dollar shortage,” Zeeshan Afzal, executive director-research at Insight Securities, told Arab News.
“Perception and real need (demand) drives the currency exchange market in both ways,” he said.
The rupee has been impacted by Pakistan’s historic high current account deficit of $14 billion that has widened because of increasing imports, insufficient exports and workers’ remittances.
“In Ramadan, the inflow of remittances has declined, demand for dollar from those going for Umrah has increased,” Muzamil Aslam, senior economist and CEO of EFG-Hermes Pakistan told Arab News.
Ratings agency Moody’s Investors Service last week forecast that the rupee could weaken to 125 to the dollar by June of next year.
The country’s central bank has already let the currency decline by 10 percent against the dollar in the past six months via devaluations in December and March.
Demand for dollars usually comes from general public, investors and importers, said Afzal.
“As our imports are more than our exports and other foreign exchange inflows, the pressure on US dollar (reserves) keeps mounting,” he said.

 

Pakistan is also taking steps against money laundering as part of its international commitment to combat terror financing, ahead of a meeting of the Financial Action Task Force meeting in June, when Pakistan will be greylisted.
As part of the measures, State Bank of Pakistan recently directed currency exchange companies to maintain records of identification documents of customers for all foreign currency transactions worth $500 or more, in line with similar thresholds in other international jurisdictions.
“The move of State Bank of Pakistan is aimed at documenting the transactions in order to discourage terror financing,” said Afzal, who added that such requirements had little impact on exchange rates.
But foreign exchange dealers have claimed that lowering the transaction threshold for identification requirements from $2,500 to $500 has negatively impacted business.
“Our daily surplus supply of dollar was around $3 million per day until a week ago, when the central bank’s measures were not enforced,”,Malik Bostan, president of the Forex Association of Pakistan, told Arab News.
“Now the supply is now down to only $1 million per day as currency exchange business has shifted to unregistered dealers.”
“There are around 30,000 unlicensed currency dealers all over Pakistan,” he claimed, adding that the majority of buyers and sellers do not want to share their identification and choose to go to unregistered dealers.
“We have asked the central bank to come up with necessary laws to protect registered currency dealers,” Bostan said. 
“Despite facing adverse business situation we have assured our support to central bank to take whatever steps are needed to get the Pakistan off the grey list of FATF.”
He said that the pressure on the dollar was unusual in the month of Ramadan when dollar inflows typically rise.

FASTFACTS

Pakistan's current account deficit has reached a historic high of about $14 billion.


Pompeo says China is engaging in ‘predatory economics 101’

Would China have allowed America to do to it what China has done to America asked US Secretary of State Mike Pompeo. (AP)
Updated 18 June 2018
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Pompeo says China is engaging in ‘predatory economics 101’

  • He said China’s recent claims of “openness and globalization” are “a joke.”

DETROIT: China is engaging in “predatory economics 101” and an “unprecedented level of larceny” of intellectual property, Secretary of State Mike Pompeo told a business audience Monday.
Pompeo made the remarks at the Detroit Economic Club as global markets reacted to trade tensions between the US and China. Both nations started putting trade tariffs in motion that are set to take effect July 6.
He said China’s recent claims of “openness and globalization” are “a joke.” He added that China is a “predatory economic government” that is “long overdue in being tackled,” matters that include IP theft and Chinese steel and aluminum flooding the US market.
“Everyone knows ... China is the main perpetrator,” he said. “It’s an unprecedented level of larceny.”
“Just ask yourself: Would China have allowed America to do to it what China has done to America?” he said later. “This is predatory economics 101.”
The Chinese Embassy in Washington did not immediately respond to a request for comment.
Pompeo raised the trade issue directly with China last week, when he met in Beijing with President Xi Jinping and others.
“I reminded him that’s not fair competition,” Pompeo said.
President Donald Trump has announced a 25 percent tariff on up to $50 billion in Chinese imports. China is retaliating by raising import duties on $34 billion worth of American goods, including soybeans, electric cars and whiskey. Trump also has slapped tariffs on steel and aluminum imports from Canada, Mexico and European allies.
Wall Street has viewed the escalating trade tensions with wariness, fearful they could strangle the economic growth achieved during Trump’s watch. Gary Cohn, Trump’s former top economic adviser, said last week that a “tariff battle” could result in price inflation and consumer debt — “historic ingredients for an economic slowdown.”
Pompeo on Monday described US actions as “economic diplomacy,” which, when done right, strengthens national security and international alliances, he added.
“We use American power, economic might and influence as a tool of economic policy,” he said. “We do our best to call out unfair economic behaviors as well.”