In a week marked by the continued recovery of the Pakistani rupee, Chief of Army Staff (COAS) General Asim Munir vowed that the crackdown against smuggling and a litany of other illegal activities would continue with full force.
General Munir made the statement during a meeting of the Provincial Apex Committee of Punjab. Flanked by caretaker Chief Minister Mohsin Naqvi, the COAS said that illegal activities such as smuggling, hoarding, and panic on the forex market had resulted in detrimental consequences for the economy.
The strongly worded statement comes in the wake of a crackdown against currency exchanges all over the country and the establishment of currency exchanges by the country’s major banks. As a result of these strict measures, the Pakistani rupee has risen sharply against the value of the dollar to Rs 287 on Thursday. Market speculations expect that the greenback will continue to fall and that the rupee will settle somewhere around the Rs 250 to Rs 260 mark. At the same time the country’s caretaker setup has been actively making statements and planning to continue to wrestle down the dollar.
The statement comes at a crucial time when the caretaker setup is ready to begin talks with the International Monetary Fund on the quarterly review of the $3bn Standby Arrangement next month. It is important to remember that the IMF had set a condition as part of the agreement that the gap between the interbank and open market rate of the dollar would not exceed more than 1.25%. One of the biggest reasons for the recent crackdown that has resulted in respite for the rupee has been to meet this benchmark.
The idea behind this condition is simple. IMF suspects that SBP in the past has been coercing the banks into keeping the dollar rate artificially low in the interbank market. The IMF does not like this, as this encourages imports and discourages exports, making the dollar reserve situation even worse . IMF, it seems, also believes that the open market is much more difficult to coerce and by requiring the rates in the two markets to be close to each other, it was hoping to keep the interbank rate nearer to the market reality. But not only was this condition not being met, the delta was so high that even if the IMF was not making us do it, such a wide gap was abnormal.
In July, the IMF executive board had approved the much-needed nine-month SBA with Pakistan “to support its economic stabilisation programme”. The approval had allowed for an immediate disbursement of $1.2bn, with the rest to be phased over the programme’s duration — subject to two quarterly reviews. The second quarterly review under the SBA, due in October, would be based on end-September data that would secure the disbursement of about $710 million worth of the second tranche in December.
Thanks to the current environment in which the dollar has been dampened, the data for September will help Pakistan go back to the IMF for the current review with heads held high. As has been the norm of late, the meeting involving the COAS also spoke regarding the Special Investment Facilitation Council and its role in the economy in the days to come.
The ISPR said the forum was also apprised of progress on the Special Investment Facilitation Council and Green Punjab initiatives. “Law enforcement actions against a spectrum of illegal activities will continue with full force in collaboration with the LEAs and the concerned government departments to rid Pakistan of the substantial economic losses it continues to suffer due to pilferage done by different methods,” the military’s media wing quoted Gen Munir as saying.
Earlier this month, the army chief had also met the business community in Lahore and assured them of fostering transparency in dollar exchange and interbank rates. During the four-hour meeting, Gen Munir had signalled towards the country’s bright future in view of the upcoming huge foreign investments in various sectors.