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Morale Booster: Positive Business Signs Begin to Emerge in Pakistan

What springs this hope? The week saw trade deficit narrowing down, home remittances rising, the pakistani rupee halting its downswing, and the central bank removing confusion on how much foreign currency can be bought and sold freely, and taken abroad. But, inflation that nudges people to convert their savings into hard currencies is going up.

These signals may not impact the economy hugely, but they are plus points, which build confidence among businessmen, savers and travellers.

Trade deficit narrowed down 22 per cent in the first seven months of the current fiscal to $8.444 billion compared to $10.825 billion in the like period of the previous fiscal.

Imports during the period totalled $19.316 billion, down 10.77 per cent from $21.647 billon in the same period last year, Federal Bureau of Statistics (FBS) reported this week.

But the remaining five months to June 30, of the fiscal 2010 may see a rebound, as industry and business have to fulfill their export orders by June 30. The energy situation is likely to improve during the coming summer months and this will expand industrial output.

Exports rose 7.52 per cent to $10.871 billion in seven months to January compared to $10.820 billion in the like period of fiscal 2009.

Home remittances sent by Overseas Pakistanis, including those from the UAE, US, Saudi Arabia and UK were up 21.53 per cent and totalled $5.198 billion during the first seven months, up from $4.278 billion in the like period of fiscal 2009.

The remittances included: UAE- $1,180.29 million, US- $1061.89 million, Saudi Arabia- $999.41 million, GCC Countries: Bahrain, Kuwait, Qatar and Oman- $737.72 million, UK- $550.35 million, and EU- $157.93 million. The Overseas Pakistanis from Norway, Switzerland, Australia, Canada, and Japan remitted $509.52 million. Officials claim “remittances through formal channels are showing considerable growth,” now for some months.

State Bank of Pakistan (SBP), meanwhile, has eased selling and buying of foreign currency of up to $5,000. Buyers and sellers will be exempted from providing their Computerized National Identity Card (CNIC), as the SBP, reversed its earlier restrictions on transactions at exchange companies.

The CNIC condition had brought down the forex business, as both buyers and sellers were reluctant to provide copies of the identity card. The restriction had slowed down the inflow of forex through the regular channels including exchange companies and banks, officials of the Exchange Companies Association of Pakistan 
(ECAP) said.

At a SPB-ECAP meeting, the central bank asked the forex exchange companies to obtain a copy of the identity card only on transactions equivalent to $5,000 or more.

SPB has also assured ECAP, that the central bank will fulfill the daily dollar and other foreign currency requirements of the exchange companies to stabilise the rupee.

But the mandatory reports of all forex transactions should be sent daily to SBP. ECAP has also demanded exemption of exchange companies from the present levy of 0.3 per cent Withholding Tax on cash withdrawals from these companies’ bank accounts. The SBP has assured the ECAP, that a meeting will soon be arranged between the association and the Federal Board of Revenues to examine the demand.

SBP has also advised the ECAP to ask its member companies to “minimise” the gap between the inter-bank rate and the open market rate of the dollar and other hard currencies. “This gap should not be more than Rs0.50 for a dollar,” SBP directed. ECAP has assured SBP, that the companies will make “all the efforts to stabilise the rupee.”

The inter bank rate of the dollar this week was around Rs 84.90/84.94. The open market rate was Rs86.30/86.50.

The plus points aside, inflation measured by Consumer Price Index (CPI) rose 13.68 per cent in January, compared to the same month in 2009. Rising inflation encourages people to buy dollars and other hard currencies to protect their savings, which in turn weaken the rupee.

The bankers and the exchange companies are watching out whether their plans to stabilise the rupee meet with success or they will have to improve upon the steps further.