Political and economic turmoil: Pakistan’s open market sees dollar shortage yet again

The US dollar was once again in scant supply in the open market as dealers cited ongoing economic and political uncertainty as the reason behind its shortage.

Customers say they have struggled to get their hands on the greenback for a few days, multiple sources confirmed to Business Recorder, while a few dealers who had a limited stock said the US dollar was available in the range of Rs300-305, a sharp increase from Rs297 a day ago.

The rupee has remained largely stable at around 284-285 in the inter-bank market.

“The US dollar is available at Rs303,” a currency dealer told Business Recorder on Wednesday. “Volatility in the rates is due to the ongoing uncertainty in the country.”

Another dealer also quoted a similar rate, attributing the wider gap between the inter-bank and open-market rates to the “lower supply of US dollar”.

Talking to Business Recorder, Malik Bostan, President, Forex Association of Pakistan (FAP), confirmed that a shortage exists in the open-market.

“Banks are not providing dollars to businesses for Letters of Credit, whereas a premium rate offered in the informal markets is pulling customers away from formal channels,” said Bostan.

He said the decline in remittance inflows is also leading to the shortage.

Remittances clocked in at $2.211 billion in April 2023 against $3.123 billion in same period last year, a decline of 29% YoY, data released by the State Bank of Pakistan (SBP) showed.

Meanwhile, Bostan told Business Recorder that alongside a shortage of US dollar, the market is also witnessing a scarcity of Saudi Riyal, another key currency in the market.

“There is a high demand for Saudi Riyal, which is currently unmet,” said Bostan, stressing that Saudi Riyals could have been used to purchase US dollars, but “both are short” at the moment.

“Moreover, customers are also not approaching the open-market to sell their dollars on account of recent political developments.”

The volatility in the open market comes as Pakistan saw a fresh wave of violence last week in the aftermath of Imran Khan’s arrest with protesters ransacking state and private property, prompting the government to deploy army troops in two provinces as well as the federal capital.

At least nine people died in the unrest, police and hospitals have said, while hundreds of police officers were injured.

The government made several arrests, which targeted top leadership of Khan’s party – the Pakistan Tehreek-e-Insaf (PTI) – as well as his supporters with reports suggesting more than 4,000 people have been detained.

Khan, freed on bail later, condemned the violence that ensued, but called for protests as he pushed ahead on his call for elections. Talks on holding polls failed earlier.

At the same time, the country’s economy has continued to bear the burden of mounting debt and falling foreign exchange reserves. Talks of default gathered steam again before Finance Minister Ishaq Dar moved to pacify markets.

The worsening economic situation has also kept the currency market under pressure for months. Last year in December, the currency market witnessed a massive dollar shortage as well, as customers struggled to get their hands on the greenback.