Pakistan currency may slip to Rs 200 against US dollars

Amid soaring inflation in Pakistan and the passing of a mini-budget worth Rs 360 billion, PKR (Pakistan currency) might fall to Rs 200 against US dollars.

Though the mini-budget stabilised the rupee but only if stability means halting a very steep decline, said Daily Times in an editorial.

There hasn't been much to write home about, and the best that can apparently be hoped for is that it will not drop any further anytime soon.

Yet exchange companies are now complaining that the sudden re-imposition of 16 per cent withholding tax on them, and subsequent notices worth hundreds of millions of rupees sent to them, could well push the dollar to somewhere around Rs 200 because they very much intend to pass the burden on to their customers.

This, then, is just another one of those examples when a crucial policy decision was taken without consulting or even educating key stakeholders.

The National Assembly had passed the controversial Finance (Supplementary) Bill, generally known as the "mini-budget", and the State Bank of Pakistan (Amendment) Bill 2021 during an hours-long session amid fierce objection from the opposition benches.

Earlier, the finance bill and the SBP bill, both tabled on December 30 in the National Assembly were necessary to ensure that Pakistan's sixth review of the USD 6 billion Extended Fund Facility gets cleared by the International Monetary Fund's (IMF) executive board.

The withholding tax was first imposed in 2014, then withdrawn in 2016 and now, after being re-imposed, there is already talk of the Federal Board of Revenue's (FBR) cancelling it once again because dealers have made it clear to the Bureau that they will have none of it and simply pass the burden down the pipeline, reported Daily Times.

The currency market is volatile enough as it is, and adding to uncertainty like this could well do more damage than can be made up for in a long time.

Already the "grey market has taken a big chunk of our business," complained the Exchange Companies Association of Pakistan to the press, fearing that the withholding tax could even make the black market replace the legal business of exchange companies altogether, reported Daily Times.

The money market is the preserve of the central bank. Yet here we have a situation where the FBR, an arm of the finance ministry and hence from the world of fiscal policy, is playing a part in spooking the local currency and scaring away investors, reported Daily Times.

At a time when the government is facing severe pressure because of the complete failure to protect the rupee, such steps can cause harm all around.

Pakistan's economy is on the ventilator and inflation is at a 22-month high, any government that heeds the cries of the people protesting out in the streets would have put this mini-budget to bed a long time ago, the Opposition parties alleged.

On the other hand, inflation in Pakistan has skyrocketed to a massive 12-30 per cent in December last year and had jumped from 11.50 per cent in November 2021.

(ANI)