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Forex firms advise govt to fix higher dollar rate to boost remittances

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  • ECAP believes the move will place curbs on illegal channels. 
  • Says it will eventually eliminate the prevailing grey market.
  • Rupee in the grey market has reached 267/270 against the dollar.

KARACHI: The Exchange Companies Association of Pakistan (ECAP) has advised the government to “fix” the dollar rate to reduce the volatility in the currency market as the country grapples with a severe economic crisis amid depleting forex reserves, reported The News.

“It is advised to fix the rupee/dollar exchange rate for export-import bills and remittances,” said Zafar Paracha, the general secretary of ECAP in a statement on Monday. These remittance proceeds could be brought in by banks and money changers at a fixed rate of 240 per dollar, he added.

The local currency ended at 228.34 per dollar, compared with the previous close of 228.15 in the interbank market. In the open market, the rupee was trading at 238.75 against the dollar. It was available at 238.50 on Friday.

Paracha suggested to the government to offer a rate of Rs240 per dollar to overseas Pakistanis and for inward remittance. He believes the move would help increase remittances, reduce Hundi/Hawala, strengthen the official channel, and eventually eliminate the grey market.

The rate of the dollar in the grey market has reached 267/270 versus the local unit, according to Paracha. For the purpose of getting the exporters’ proceeds, the offer could be made at 228 rupees to the dollar. And the rate for importers would be based on the weighted average of home remittance and exporter rates. It would benefit exporters and remittances, he explained.

“It will encourage exporters to bring dollars into the country, enhance the foreign exchange reserve, and strengthen the remittances segment of the exchange firms.”

Remittances from Pakistanis working abroad dropped 19% to $2.0 billion in December. 

During the first six months (July-December) of the current fiscal year, the nation received $14.1 billion in remittances, which is a decrease of 11.1% from a year earlier.

Pakistan’s forex reserves held with the State Bank of Pakistan dropped by $1.2 billion to $4.3 billion as of January 6 — enough to cover barely three weeks’ worth of imports.

The country is currently experiencing a balance of payments crisis due to large foreign debt repayments and a lack of external finance, which have severely depleted Pakistan’s foreign reserves and led to persistent dollar shortages.

The government has restricted several imports to save dollars, and some businesses have shut down as a result of being unable to import machinery or parts.

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An increase in tax was made on restaurant card payments.

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After 15 years, the SRB reduced the service tax that 58 hotels and restaurants in Karachi could have charged on debit and credit card purchases to 15%. This action is a part of the Sindh budget, which was designed to make eating out less expensive for customers.

Prior to this, Sindh’s tax on credit and debit card purchases was lowered from 15% to 8%.

Officials from the SRB have further stated that the service was made available for input adjustment of restaurant tax payments. With this step, businesses will be able to efficiently handle their tax responsibilities and the tax process would be made simpler.

Only a few eateries have been given authority to remove the lower tax rate, even though this tax facility has been reversed.

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The KSE-100 Index rises following a sharp decline in the previous session.

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The government is considering filing a treason case under Article 6 against PTI founder Imran Khan, former president Arif Alvi, and former deputy speaker Qasim Suri. On Tuesday, the KSE-100 Index was up more than 1.3% during early trading, following a day of roughly a 2 percent loss due to growing political unrest and the potential banning of the party.

However, the benchmark index of the Pakistan Stock Exchange was trading at 79,074.63 by 11:49 a.m., having gained 535.45 points, or 0.68 percent, after reaching an intraday high of 79,578.04.

Market analysts said that political tensions were the primary cause of the KSE-100’s earlier Monday decline of 1578.71 points, or 1.97 percent.

They did point out, though, that a correction was a reasonable reaction to the protracted upswing that allowed the benchmark mark index to reach 81,839.86 on July 18.

As a result of interest rate cuts and the possibility of another IMF program, the Pakistan Stock Exchange has gained 22.97 percent so far this year. The cycle began on June 10 with a 1.5 percent decrease in borrowing costs.

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In interbank trade, the US dollar crushes the Pakistani rupee.

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During interbank trade on Tuesday, the US dollar’s value increased by 15 paisas, reaching Rs 278.45.

It is important to remember that Fitch Business Monitor International expressed concern about the possibility that Pakistan’s economic stability may be jeopardized by the ongoing political unrest.

The fragile situation of Pakistan’s economic recovery was emphasized by Fitch in its most recent Pakistan Country Risk Report, which also noted that economic activity has been impeded by urban protests.

(PTI),In spite of multiple successful judicial appeals, the founder of Pakistan Tehreek-e-Insaaf (PTI) is expected to stay behind bars, the article notes, underscoring the fragile political environment.

With no urgent plans for new elections, this scenario suggests that the coalition administration will remain in office for the next 18 months.

Fitch also described an eventuality in which the government could change and be replaced by a technocratic administration. This suggests that the government of Pakistan would carry out the reforms demanded by the IMF, contributing to the 3.2% GDP growth expected in 2024–2025.

The policy rate has stabilized above projections, while the research predicted it may reach 16 percent this fiscal year and 14 percent the following year.

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