KARACHI: Pakistan’s spy agency has launched a clampdown on black marketeers after an increase in dollar rate to a 22-month high of Rs284.97 this week, the chairman of the Exchange Companies Association of Pakistan (ECAP) told Arab News on Thursday.
The crackdown follows a meeting of Maj. Gen. Faisal Naseer, a deputy chief of the military-led Inter-Services Intelligence (ISI) agency, with the exchange companies in Islamabad on July 22, according to ECAP Chairman Malik Bostan.
The intervention has since helped stabilize the open market rate and the Pakistani currency surged against the greenback by one rupee on Thursday. On Friday morning, the dollar was trading at Rs283 at the Pakistani currency market.
Arab News approached the Inter-Services Public Relations (ISPR), the Pakistani military’s media wing, but did not receive a response to its request seeking comment on the matter.
“The dollar rate is going to come down significantly. The crackdown is going on and has lifted pressure from the currency market,” ECAP chief Bostan said.
The crackdown is the second such intervention by Pakistan’s military which had launched a similar drive against illegal trade of the greenback in 2023 to help stabilize the exchange rate. An inflated dollar rate reflects on the pace of price hike in Pakistan, which spent more than $58 billion on imports in the outgoing fiscal year that ended in June.
The cash-strapped South Asian nation, currently bolstered by a $7 billion International Monetary Fund (IMF) program, has long been struggling to stabilize its forex exchange reserves that contracted to $19.9 billion last week because of external debt repayments made to foreign lenders.
The IMF wants Islamabad to ensure the country’s exchange rate is driven by the market which, however, is loosely regulated and runs in at least three tiers of exchange rates: interbank, open and grey market.
“The dollar fell below Rs287 to Rs286.90 in the open market because of the agencies’ crackdown and exporters who have started selling their proceeds,” Bostan said, adding that those hoarding the greenback in hopes of its value to surge to Rs290 would be disappointed.
Qazi Owais-ul-Haq, a currency dealer at the Karachi-based Arif Habib Ltd. brokerage firm, said the exchange rate gap between the official and black markets had “widened significantly,” promoting an intervention.
“This crackdown would make a difference and it has already as we saw the dollar has slid,” he told Arab News.
Pakistan’s rupee has been depreciating in recent months and has lost 2 percent of its value since January in the interbank market, despite the country’s improving current account that showed $2.1 billion surplus in the outgoing fiscal year, according to the central bank data.
On July 22, the dollar surged to Rs284.97, a level last seen in September 2023, according to Adnan Sami Sheikh, assistant vice president of research at the Pakistan-Kuwait Investment Company.
Bostan said he told ISI’s Naseer the mafia which smuggled dollars and other foreign currencies to neighboring Iran and Afghanistan “have become active again,” citing new tax regulations like taxing buyers on Rs200,000 purchases in cash.
“Many customers who do not pay taxes hide their identities while buying and hoarding foreign currencies from the black market at a large scale,” he said, adding that Maj. Gen. Naseer “immediately ordered law enforcement agencies to launch a crackdown on currency smugglers and arrest them.”
Pakistan, which has been struggling with border controls, saw the smuggling of as much as $5 million a day into Afghanistan amid international sanctions since the return of the Taliban in August 2021, ECAP Secretary-General Zafar Sultan Paracha said in Feb. 2023, the year when the Pakistani military first intervened into the matter. The amount more than covered the as much as $17 million that Afghanistan’s central bank was injecting weekly into the market at the time.
While the Pakistani rupee has shown some signs of recovery since the exchange company representatives’ meeting with the ISI official on July 22, Bostan hinted the central bank’s buying of dollars from the interbank market was also increasing demand for the greenback.
The State Bank of Pakistan (SBP) had bought $9 billion from the interbank market over the last nine months to boost its reserves, according to the ECAP chairman.
“It has now stopped buying dollars from the interbank, meaning the dollar rate will not rise but is likely to fall significantly,” Bostan said, adding the greenback may drop by more than Rs10 in the next one month if the central bank did not buy dollars from local market.
But Sheikh believed otherwise.
“Despite the crackdown in the news, ground reality is very different with money changers in affluent areas of Karachi where dollar demand remains high, reporting no availability of dollars today,” he said on Thursday, adding that the grey market was hovering around Rs295-Rs300 a dollar which was nearly 5 percent above the official interbank rate.
“When no dollars are available at money changers then of course, people would continue to buy from the grey market and the rate would remain elevated.”
Separately, Pakistan’s Army Chief Field Marshal Asim Munir met the country’s top businessmen from the Federation of Pakistan Chamber of Commerce and Industry (FPCCI) and All Pakistan Textiles Mills Association (APTMA) on July 21.
In a statement on July 22, FPCCI president Atif Ikram Sheikh said the army chief had assured the business community of his full support in efforts to revive and strengthen Pakistan’s economy.
