DOLLAR THE MOST SOUGHT-AFTER THING IN PAKISTAN

Written by Shabbir Butt

Now a days dollar is the most sought after thing in cash strapped Pakistan as foreign reserves have dwindled down to its lowest level and reverberations of default are being heard every where and situation got further exacerbated by IMF stiff restrictions for the release of next installment thus creating more difficulties  for poverty stricken Pakistanis to make both ends meet.

Courtesy, Dawn News

Now hopes are pinned over China and Saudi Arabia to help increase our foreign reserves to quell the speculations of default.

From Where Come the Dollars

1. Foreign remmitences 

2. Exports 

3. Foreign direct investment (FDI)

4. International lenders 

5. Foreign aid

Foreign Remmitences  

Remmitences data 2022

Foreign remmitences are the back bone of  Pakistan's economy sent by expats working in every nook and corner of the world especially Gulf countries. Expatriates have played pivotal role in the stabilisation of the country's economy by sending their hard earned money.

As always expats in Kingdom of Saudi Arabia stand first when we count foreign remmitences while UAE, UK, USA, GCC and EU comes later respectively.

Pakistan received 31 billion dollars of highest foreign remmitences in May 2022 in the era of Imran Khan PTI Government. But remmitences plummeted sharply as soon PTI government got dethroned.

 The latest data released by SBP shows that foreign remmitences dwindled down to 2.1 billion dollar in November 2022 from 2.5 billion dollar in the same month last year.

Experts are of the view that remmitences declined due to the adoption of informal channels by the expats while sending remmitences to Pakistan to seek more profit. As there is disparity between inter bank  dollar exchange rate which stand at 224.71 rupees per dollar and the local market rate is hovering around 250 rupees per dollar.

Foreign Direct Investment 

  

Foreign Direct Investment are investments made by foreign compnies or countries in another country by acquiring complete control of the joint venture as well as active position in the management. FDI plays linchpin role in the integration of international economy.

Pakistan's Foriegn Direct Investment has plummeted to 82 mn USD in November 2022. Highest FDI came in Pakistan in June 2008 amounting to 1.3 mn USD.

The main reason behind the decline in FDI is the worsening law and order situation in the shape of suicidal attacks on Chinese engineers working in different parts of the country.

 Secondly political instability also plays its part to hinder the FDI demotivating investors to invest in Pakistan. Even own businessmen rushing towards Bangaldesh for establishing their businesses taking in account the insecurity factor.

Exports 

Export data ( source Dawn News)

Exports are the main source of swelling the foreign reserves as well as to eradicate the unemployment in the country. Pakistan being an agri country have increased the textile exports in COVID-19 period . The top most exports are from textile sector and agri sector (rice) exporting to USA,Germany,China,UK and UAE.

In the current fiscal year country's exports in first five months dwindled down to 2.37 billion USD as compared to 2.9 billion USD in the same period last year.

Source Dawn News

Record high exports valuing at 25.3 billion USD, were in fiscal year 2020-21, an increase of 18 % was observed on a year on year basis.

International Lenders

Owing to  unpredictable economic conditions Pakistan often approach international lenders, the main of which is IMF. Pakistan got first bailout package in year 1958 in General Ayub's era after joining IMF in 1950 after Independence from British rule. However this amount was not drawn.

 Since first bailout package in 1958 Pakistan got twenty two packages in total.

It is important to note that approval of IMF loan also paves the way for the realization of other planned loans from bilateral and multilateral sources.

Pakistan also borrows from World Bank, Asian Development Bank and Islamic Development Bank apart from brotherly countries.

Foreign Aid

Pakistan is receiving foriegn aid since its inception.

US has extended his support after 2001 during war against terrorism. UK also lend support to Pakistan in the uplift of health infra structure and education. 

Courtesy BBC

In the 2022 deadly floods one third of Pakistan submerged under water and 1800 people lost their lives especially in Sindh and Balochistan and parts of Southern Punjab. 

Pakistan received aid from friendly countries and also at COP 27 held at Sharm el Shiekh European made pledges of aid to cope with climate induced disasters.

Saudi Arabia and UAE

Both Saudi Arabia and UAE are time tested friends of Pakistan and deep rooted relations based on religious, military and strategic connections. 

Both countries never lag behind to extend financial support and supply of oil on deferred payments when ever Pskistan called them in the hour of need.

Conclusion

To baloon up the foriegn reserves Pakistan should increase its exports by diversifying them and searching new avenues with value addition by creating export friendly policies for exporters and curtail unnecessary imports to reduce and control the current account deficit.

Secondly Govt should introduce new schemes and incentives for expats for increase in foriegn remmitences as being done in neighbouring countries.

Thirdly, all stake holders should strive hard for creating conducive political atmosphere and peaceful law and order situation to attract the foriegn investors for investment in multiple fields.

Fourthly Pakistan fought its case at COP 27 held Sharm el Shiekh Egypt vehemently and wealthy nations pledged to give compensation to victim countries especially Pakistan.

Lastly Govt should take concrete steps to reduce non development expenditures and mend his ways to adopt austerity measures as well as creating opportunities to reduce unemployment.

By Shabbir Butt