In December 2022 total inflow of remittances through the official channels stood at $2 billion, which is 19 percent decline from last month. This is due to the disparity between the official price of US Dollar (the interbank rate) and the price in open market. As in open market you can trade your dollars in much more money, people are adopting to use the unofficial channels more to send in their remittances. This not only take away the government’s opportunity to charge tax on money sent in but also the inflow is not properly added to foreign exchange available to state bank and other government owned bodies.
The disparity between the official interbank rate and the open market is due to government’s measures to keep the price of US Dollar. However, the measures taken are more towards officially keeping the price down, which is the main cause of the issue.
Also on side by side of this issue, Pakistan’s foreign currency reserves are also on lowest level of tens of years. In December Pakistan was left with reserves of just $4.5 billion USD. Due to this government is not opening Letter of Credits (LCs) for imports of many goods and items. Currently about 5700 containers of imported stuff are stuck at port and not being cleared by government due to lack of foreign exchange amount and LCs issue. Traders are currently very unhappy with the State Bank of Pakistan (SBP) chief, due to mismanagement about how the issue of LCs being handled.
Also according to a recent news which just came in today, the world bank have delayed approval of $1.1 Billion USD loan to Pakistan, due to the circular debt in power and energy sector, which is ever growing. Also the foreign currency reserves Pakistan had earlier in January 2023, stood at $4.3 billion USD. Even lower than the December amount mentioned above. The approval of above mentioned $1.1 Billion USD loan from world bank is pending since June 2022.
Another thing which have mainly dragged down the economy is the political instability which Pakistan is facing. A year back when Pakistan Tehreek-e-Insaf (PTI) was in power, though there were some issues like inflation etc, but overall the economy was getting back on track. But after ousting the Imran Khan and his PTI, when all the political stakeholders upped their game to take superiority over the opponent, ultimately this affected the economy of Pakistan badly.
Current political government’s own former finance minister Mitah Ismail does not agree with the strategy of forcefully restricting the exchange rates of currencies. A better alternative would be to plan to increase exports and trying to investment in sectors which can increase the exports. Pakistan should also look further than the conventional goods.
Pakistan’s IT exports are next to nothing. India and Bangladesh have made their economies much stronger by just exporting the IT products and services. People of Pakistan are doing their part but government’s facilitation and planning in IT sector of Pakistan is next to nothing. None of international IT giants and social media have offices in Pakistan and much more are present in India. The international companies may come in only after assurance from government of Pakistan and the law making which assures them that their will be continuity in policies, no matter which party will be governing he country. In this regard, all of the governments just failed, I am not sure why they are just ignoring a humongous opportunity. India’s IT exports approximate to $200 billion USD per year and Bangladesh’s IT exports are well above $50 billion USD per year. We can do somewhere in between these two but unfortunately we are just on level of $2 billion USD per year. There is a huge potential here, which can change the fate of our country.
It is just matter of fixing the policies and their continuity and law making which can allow the multinational and world IT giants to enter Pakistan. As Pakistan is world’s fifth biggest country by population, so plain and simple ignoring it and ignoring the revenue potential for these IT giants is not possible. However, lack of business friendly policies, their continuity and lack of supportive law making is the real issue.
If we go back to exports of conventional goods, it is very important that as first step the issue of LCs and import of raw material is resolved. Otherwise the industries will not be able to fulfil the local demand, let alone the exports. Currently too, much of stuff, which is used locally is imported, but such curbs make the problem even widespread. Just take the example of auto industry of Pakistan, many auto manufacturers have stopped local production of vehicles due to not being able to import completely knocked down (CKD) kits for production of cars and other vehicles. Suzuki Pakistan is one of them, which have their production plant closed for the third week continuously. They simply were not able to produce any vehicle in Jan 2023 until now, other two wheelers.