User:Sulaman Ramzan from UOG

Exchange rate fluctuation and its impact on economy of Pakistan? Exchange rate is a rate at which one currency will be converted into another country. Fluctuation means appreciation and depreciation in home currency in concern to the foreign currency.

Suppose if we take U.S Dollar as a foreign currency and Pak Rupees as a home currency and Dollar is depreciating this time as compare to Rupees.

How our currency is appreciate since march, 2014: According to our point of view Dollar is depreciate due to a friendly Muslim nation gave us $1.5 Billion in Pakistan development fund. Because there is inverse relationship between demand and supply, now supply of dollar has been increased in the foreign exchange market so due to decrease in demand value of Dollar is depreciating.

Reserves of foreign currency has been reached upto $9.52 Billion. And its proposed that IMF will pay $550 Million to Pakistan due to this exchange rate of Pakistan currency will also sharply becomes favorable.

Remittances from foreign countries has been also increased upto $10.24 Billion during the past 8 months as compared to $9.23 Billion.

Impact on Pakistan Economy: The confidence of the investors will increased to start their business in Pakistan and due to this job opportunities will also available and the financial position of poor people will also available. Unemployment level will also reduce.

Due to the appreciation in currency the inflation level in Pakistan will also decreased and the prices of the goods and services will also reduce.

Due to this political stability and security system will be improved and confidence of the foreign investors will increase they will give preference to the invest in Pakistan because Pakistan will also provide high rate of interest on investment and due to this foreign direct investment will increase. Due to the help of friendly nation $1.5 Billion it will help us to decrease the inflation level in Pakistan to retained at 8.6%.

Reserves of foreign currency has been reached upto $9.5 billion and we can easily make investment or import and export.

According to the economists of Pakistan said that the SBP in its monetary policy also indicated that our economy is improving. Now the prices of petroleum products, utility rates and prices of daily commodities and edibles can be reduced.

17% GST must be reduced to five percent which will reduce inflation rate to 4% from 9% be maintained. When prices of the raw materials will reduce due to appreciation of the home currency the finished goods will sell at low prices in the country and exported at high prices to gain profit.

Purchasing power parity is inflation differential is also affected by exchange rate. When prices of the goods and services is same in all countries that is parity and if it against it is called disparity. Due to the low rate of inflation level PPP will also favorable. Due to appreciation of home currency it will attract to FDI during the 1st month of 2014 ($106 Million).

ISHAQ DAR action on Dollar: Finance Minister Ishaq Dar on Wednesday said that a friendly Muslim nation gave $1.5 billion for Pakistan Development Fund (PDF) but refrained from disclosing the lender’s name. “A friendly Muslim country has confidence in Pakistan and its leadership and deposited $1.5 billion in the PDF,” he said.

Speaking at a press conference, an unusually upbeat Dar claimed PDF contributions, actions against exporters who were withholding export receipts abroad and warnings to exchange market speculators – helped recoup the depleted foreign currency reserves to $9.52 billion. Dar said better foreign currency reserves position strengthened the value of rupee against the US dollar bringing it to a record low of Rs97.90 on Wednesday. “The dollar’s current rate is realistic.

Dar said the benefits of a stronger rupee are such that the country’s dollar-denominated external debt has reduced by Rs800 billion ($8.2 billion). This will also translate into reducing prices of electricity and petroleum products that will lower inflation. Finance minister said that the fund will be channeled through the State Bank of Pakistan (SBP) to finance mega energy and infrastructure projects initiated by the prime minister. “The difficult period of getting external inflows is over and the government has added net $2 billion in reserves in last one month”, he announced.

Dar also said he was confident that the reserves will cross $10 billion by the end of this month and $16 billion by end of current fiscal year.

The finance minister vowed that in three years the reserves level will be taken up to $20 billion, adding that the present rupee-dollar parity was sustainable as long as the reserves position remained stronger.

Taking a swipe at those who criticized the government for its failure to control prices of essential items, Dar said the price of onions, tomatoes and dollars has been brought down to the level when Prime Minister Nawaz Sharif took oath.

During the press conference, Dar also said he would not pursue anyone to resign after the rupee-dollar parity has been brought back to Rs98 a dollar. But it’s the media that was holding him (Sheikh Rashid) accountable for his claim, he added.

In response to Dar’s claim to bring dollar rate below Rs100, Awami Muslim League (AML) chief Sheikh Rashid, had challenged the finance minister and said he would resign, if Dar succeeded in lowering the value of US dollar.

Money market experts said that the local currency, marking the strongest appreciation of the last 30 years, has gained over 8% against the dollar since November 2013 when the rupee-dollar parity in the interbank market reached a high of Rs109. They said rupee’s gain owes most to SBP’s better management and introduction of stricter discipline in the forex market. Moreover, the foreign investment agreements including $20 billion deal with China on energy sector signed by the present govt has also fuelled optimism about exchange rate stability.

Exchange Companies Association of Pakistan Chairman Malik Bostan said that last time rupee experienced such a huge appreciation after the 9/11 attacks when it gained more than 6.2% against the dollar in Dec 2001. He said in the past, rupee was artificially depreciated and the greenback doubled its worth from Rs60 to Rs109. The present collapse of dollar is natural and not due to the efforts of the government, he added.

Sohail Khan, former SVP of the HBL, said the depreciation of the dollar would result in massive reduction in cost of imports and the banks were already expecting the dollar to fall below Rs100 mark, as there was no hurdle in the free fall of the dollar because exporters and investors were selling their holdings quickly.

Former Finance Minister Dr Salman Shah said that after many months the rupee has hit the mark of Rs100-a-dollar, gaining eight percent in a couple of months, reducing foreign debts of Pakistan by almost Rs700 billion.

Government has implemented concrete steps to improve overall external position by ensuring substantial capital and financial inflows in the country. As a result, forex reserves of Pakistan have improved substantially in the last one month. This has been made possible by not only receiving larger inflows from multilateral and bilateral resources, but also through attracting forex flows through the capital markets and better home remittances.