Govt can’t afford to let value of PKR sink further: PBF

KARACHI: Vice President of the Pakistan Businesses Forum (PBF) Ahmad Jawad has stated that the government can no longer afford to let the local currency sink further because the value of dollar is getting uncontrollable, with the rupee’s value declining by more than Rs10 in just two days.

He also pointed out that the State Bank of Pakistan (SBP) is functioning without a ‘proper governor’ for the last 75 days.

“It is the height of government’s indecisiveness. If (the value of) dollar is not controlled, the prices of petrol and electricity will increase to unimaginable levels,” he said.

Ahmad Jawad was of the opinion that the authorities have underestimated the severity of the crisis and the complexities involved. “Now it seems to be getting out of hand. The free float policy must be recalled.”

The rating agency Fitch has revised Pakistan’s outlook from ‘stable’ to ‘negative’, citing several reasons for the downgrade, including adjustment risks, political risks and declining reserves.

In a report issued two days back, the New York-based agency — one of the three major global rating agencies — also affirmed Pakistan’s Long-Term Foreign-Currency (LTFC) Issuer Default Rating (IDR) at ‘B-’. Fitch noted a “significant deterioration” in Pakistan’s external liquidity position and financing conditions since the start of the year.

According to Fitch’s report, another factor behind the downgrade was the pressure on foreign exchange reserves, which it noted, had declined to about $10 billion or just over one month of current external payments by June this year, down from about $16 billion at this time last year.

In the meantime, PBF has called for reduction in the benchmark interest rate, which has been increased to 15 percent in order to save the economy from further troubles. That step, however, would affect the growth of business activities and cause further slump in the economy.

Mr Jawad said that the benchmark interest rate in Malaysia is 2.25 percent, Indonesia 3.5 percent, China 3.7 percent, Bangladesh 4.75 percent and India 4.9 percent, but it is 15 percent in Pakistan due to which it is impossible for the private sector to compete effectively for promoting trade and exports.

He said the economic managers of the country and the SBP officials should keep in mind that in April 2022 the Federal Shariat Court (FSC) stated in a decision that ‘Riba’ or interest is prohibited in Islam, including in banking transactions.

The FSC directed the government to adopt Sharia-compliant modes while borrowing from domestic or foreign sources in the future.

The FSC also set an implementation timeline of five years to turn the Pakistani economy into “equitable, asset-based, risk sharing and interest-free economy” by end-2027.

The PBF’s vice president said that if court orders are implemented effectively, the Islamic finance industry could receive a major boost in the medium term. However, uncertainties loom over policy implementation as court judgments on this subject were issued previously but with limited effect on the banking sector.

The size of the country’s Islamic finance industry is estimated to have crossed the $42 billion mark at end-1Q22. Islamic banks are the largest contributor to the Islamic finance industry at 67 percent (total assets), followed by Sukuk at 26 percent (outstanding amount), Islamic funds at 6 percent (total assets), and Takaful at 1 percent (total contributions).

Copyright Business Recorder, 2022