SBP rebuts claims capping dollar price caused $3bn loss in remittances

KARACHI: The State Bank of Pakistan (SBP) on Sunday rebutted claims that capping the price of the dollar caused a loss of $3 billion in remittances and exports, ARY News reported.

“Export of goods have been facing headwinds due to moderating demand in international markets as most of our major trading partners are going through a period of monetary tightening,” the central bank said in a statement.

It further stated that US Federal Funds rate has surged from 0.25 percent in March 2022 to 4.5 percent to date, suggesting a noticeable global monetary tightening.

The SBP further said inflation was significantly higher in developed world, eating into the purchasing power of consumers. “These, together with domestic factors like devastating floods and ensuing supply disruptions, have negatively impacted exports,” it added.

“In this backdrop, linking decline in exports to relatively stable exchange rate is not appropriate,” the central bank added.

Explaining further, the SBP said that workers’ remittances were gradually tapering off from all time high level of $3.1 billion achieved in April 2022 due to Eid related flows.

“This decline is primarily attributed to global economic slowdown as higher inflation in developed countries has led to higher cost of living abroad, thus reducing the surplus funds that could be sent back to homeland as remittances,” it added.

Moreover, the State Bank said, with the resumption of international travel post COVID, some remittances have switched back to FCY cash transfers via overseas Pakistanis travelling to Pakistan.

“Thus the decline in Pakistan’s exports and remittances is a result of numbers of exogenous factors and domestic reasons and it wouldn’t be appropriate to ascribe it to exchange rate only,” it added.

It is pertinent to mention here that the Exchange Companies Association of Pakistan (ECAP) has decided to remove the cap on the US dollar in a bid to end ‘artificial’ demand in the market.

In a statement, ECAP secretary Zafar Paracha said that the association was withdrawing the cap on the US dollar in the “nation’s interest” as the limit was causing adverse effects.

The statement noted that there was artificial demand in the market as people would buy the dollar from us and sell it in the grey market.

“As a result, the business was shifting from official channels to the grey ones, hurting not only the reserves but also dealing losses to the exchange companies,” Zafar Paracha added.