The rupee maintained a firm posture against US dollar in both open market and interbank market during 2005, but in the closing sessions it stuck in a tight range due to importers' hectic buying of greenbacks to meet payment of import bills.
In the open market, the rupee lost 20 paisa for buying at Rs 59.90 per dollar, and 25 paisa for selling at Rs 59.95 for selling, against last year's Rs 59.70 and Rs 59.80, respectively, dealers said.
The rupee, however, gained nearly Rs 10 versus euro for buying and selling at Rs 70.40 and Rs 70.50, respectively, they observed.
The rupee slid about 30 paisa in relation to dollar for buying and selling at 59.73 and 59.75 in the interbank market against the last year's 59.42 and 59.43, respectively.
Versus pound sterling, the rupee gained Rs 12 to 102.50 and 102.70 against last year's 114.15 and 114.45, respectively.
The State Bank of Pakistan's (SBP) strategy to keep the rupee firm versus US currency and discourage dollarisation in the country helped the local currency to hold its level versus dollar, currency experts said. But on the other hand, they realised that this factor adversely hit the country's exports slightly. They said that as compared to other regional currencies, the rupee retained its present levels.
Under the circumstances, most of the Asian and some other Mideast currencies drifted lower versus dollar to remain competitive in world export markets.
After observing no significant improvement in the disappointing condition of world economies many Asian states did not let their currencies to go up. Instead, they kept their currencies in a drifting position to face and tackle the situation.
After sharp rise in US trade deficit due to its own weak fundamentals, the American economy was not in a very strong shape, which apparently impacted world economies adversely, they said.
At the end of the year, the rupee traded in a negative zone, mostly, but rise in remittances and less demand from local investors supported the rupee to hold its firmness, they said.
As the year drew to close, a development was very much conspicuous by its importance as President Musharraf appointed dr Shamshad Akhtar, from the Asian Development Bank (ADB), as SBP chief. The news came like a bolt from the blue for the business and the financial markets, locally.
Since 2004, she had been on the higher position as Director General of ADB in Manila. She is the first woman to be named Governor of SBP. As the new Governor she has to face several challenges despite the fact that the country has been on the path of recovery.
As a woman, the appointment of Dr Shamshad akhtar as governor of the central bank was welcome and an encouraging news for women's circles who are still fighting against human right violations in the country and the world over.
She told Aaj Television that she has slight idea about the current goings in the country. Under the circumstances, when the country is on track the business and financial markets are in doldrums, but getting ready for the ups and downs.
The financial markets, particularly under outgoing governor of the SBP, have learnt to adopt turns and twists. The ex-governor had indicated that no probable change was imminent.
But away from the country for around 14 years, Shamshad Akhtar must be watching the upheavals in the country, which only has slight stable fundamentals. As the adage goes 'Har keh Amad Amarat-e Nau Sakht'. Hopefully, she will prove it wrong and will keep herself away from confusing factors and prefer to continue the economic reforms in the country, at least till the time confronts her perceptions.
Seemingly, when the country is back on tract, despite weak fundaments, she has an important job of performing her duties with caution. Because, the country still needs a lot of efforts to continue its economic policies.
Speaking at the National Press Club in Washington DC, some time ago, President of World Bank, Paul Wolfowitz, commenting on the country's economy had said that Pakistan "loses four to six percent of its Gross Domestic Product (GDP) annually due to poor infrastructure, regulatory obstacles and informal barriers.
Economic managers must take practical measures to remove all hurdles in the way, especially to curtail the poverty and unemployment rates in the country. They must come forward and introduce bold and practical measures to handle the situation. Only lip service and long slogans will not work to control the emerging situation in the country. The Chief of the World Bank also said that poor services and road conditions were doubling travel time. The cost of transport, insurance related services are 3-4 times higher than in Europe. He also realised that long and cumbersome customs procedures have encouraged bribery in the country.
Some other economists said that these negative factors had derailed the economy out of track. But the economy has started showing some signs of recovery and coming back on track as a result of corrective and precautionary measures taken by SBP and the government.
In the early months of the year, the rupee maintained a firm posture; resultantly, dollar investors turned to the stock market due to lucrative business. The main feature was the launching of the Kot Addu Power Company's (Kapco) in the shares business. Big rush was seen in the business of Kapco as public thronged to grab the Kapco equities, they observed.
According to official figures issued by Federal Bureau of Statistics (FBS) on December 15, 2005, during the five months of the current fiscal year ( 2005-06), the country's trade deficit has widened to 1.852 billion dollars in November from 998.21 million dollars in October, and from 567 million dollars of November 2004.
Some analysts said it was because of high global oil prices and increased imports of commodities and raw materials.
The cumulative trade deficit for the July-November period was $4.55 billion, compared with $1.85 billion a year ago.
The Bureau said exports fell to 1.12 billion dollars in November from 1.32 billion dollars in October, but were up by more than 23 percent from November 2004 figure of 908.95 million dollars.
According to Currency Market Associates (CMKA), to arrest the extraordinary tendency in the inflation rate, the central bank mopped up the excess liquidity though Repo transactions during last year.
It is widely speculated that in the first quarter of 2006, the inflation rate may go up further as the consumer price Index (CPI) is still teasing 8.5 percent mark, that is above the target. And, secondly and most importantly, the wholesale price index (WPI) data, which is the future inflation trend indication, is currently 11 percent, and not depicting any sign of comfort.
As a result of outflow of foreign exchange from the country for payments of Haj abroad, the Asian Development Bank (ADB) and debt payments and oil payments caused declining trend in the forex exchange reserves, but strong inflows of money from export proceeds and overseas remittances were enough to manage the situation.
The SBP has to tackle the situation boldly in the coming days, because it has a tough job due to the widening of the trade gap, and higher import bills following the unprecedented rise in the world oil prices. If imports are not checked, it may hit foreign exchange reserves in the days ahead.
Welcoming Dr Shamshad's appointment, the management of First Women Bank (FWB) and its President, Zareen Aziz, congratulated her, and said they were confident that she could deal with the future challenges "as she is a bold and competent lady". The management of FWB said that Dr Shamshad's efficiency will prove that she can do a lot for the betterment of development, not only for the economy of Pakistan but also for the entire south-east region.
An official of Soneri Bank said that there was no doubt "she is a competent lady" and her services would help in positive developments in the banking sector.
In the coming days, inflation might come down from the current rate and also there might be downward revision in the trade deficit, some analysts said.
They said that the State bank of Pakistan's quarterly report showed falling trend in the economic growth due to higher inflation rate.
Presently, the inflation came down below eight percent from last year's 9.3 percent level. The present figure is still high against the earlier projected level at seven percent.
Under the circumstances, the country needs courageous and practical people to make up the losses, especially women expect that she (Shamshad) would continue the policies for development works of women, especially for the needy females who can not run their businesses in the absence of easy loan facilities.
Some bankers said that the trade gap was a big challenge for her, because it was widening day to day due to rising trend in imports. President of Forex Association of Pakistan (FAP) said that as a result of surging trade gap, it is feared that this negative indicator may drag the country into the dangerous zone because foreign exchange reserves are indicating a downward trend due to said reason.
Due to huge year-end payments, the reserves held by State Bank of Pakistan's (SBP) came down slightly to 8.798 billion dollars some time ago but now they have risen to 8.867 billion dollars, they added.
According to SBP, the reserves now stand at 11.310 billion dollars. Reserves held by SBP rose to 8.867 billion dollars from 8.798 billion dollars a week earlier. The country's reserves hit the all-time high of 13 billion dollars in the week ending April 30, 2005. The country needs to introduce easy and simple rules and regulation to increase foreign exchange and remittances.
Moreover, better law and order situation and concessions in rules will attract foreign investment, which will improve investment in the country and will create job opportunities.
Besides, business-friendly atmosphere will definitely increase the remittances. The most important thing, which simultaneously creates jobs and increases foreign exchange earnings is tourism. The government must take notice of this part and provide better facilities to facilitate tourism in the country.
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