SBP's forex control measures would not have much impact on rupee value: experts
The State Bank of Pakistan (SBP) has revised a number of measures to curtail the outflow of foreign currency at a time when its reserves hover around the $9 billion mark.
The central bank reduced the existing foreign currency cash-carrying limits by 50% for travel purposes with immediate effect.
As a result, individuals aged 18 and above can now take out of Pakistan foreign currency (FCY) equivalent to $5,000 per visit. Minors (less than 18 years of age) can carry out FCY equivalent to $2,500 per visit. Moreover, the annual ceiling to take out FCY for adults and minors shall be $30,000 and $15,000, respectively.
The SBP, in its statement, said the per-visit limits will be applicable immediately, while annual limits will be applicable from January 1, 2023. Experts including currency dealers have expressed their opinion on the development. "These measures will yield good results as the country battles a foreign exchange reserve shortage," said Zafar Paracha, General Secretary, Exchange Companies Association of Pakistan. Paracha said the move would discourage currency smugglers.
Moreover, the central bank also set a $30,000 annual limit on Credit/Debit cards for international transactions.
"People were using credit and debit cards for commercial transactions and were purchasing things from e-commerce platforms including Alibaba, which were a significant amount. Therefore, the $30,000 annual limit is a significant development," said an analyst.
Meanwhile, others expressed concern that the measure could hurt small businesses that use credit/debit cards for purchasing goods. "Small businesses and those involved in e-commerce would face problems.
Instead of making it easier to access international market, this would create hurdles," Saad Khan, Head of Research at IGI Securities, said. Pakistan sees a large amount of foreign currency outflow to neighboring countries including Afghanistan and Iran. To control the outflow, the central bank has also set limits for passengers travelling to Afghanistan.
In this case, the maximum limit per person per visit in USD or equivalent in other foreign currencies is $1,000 with annual ceiling amounted to $6,000 per person, said the central bank. "Smuggling (of currency) cannot be controlled so easily," said Khan, adding that there are a number of loopholes in the system.
Paracha called for a remedy of the issue and urged authorities to revise its policy towards Afghanistan especially the immigration policy. "SBP should also play its part in this regard," he said. In recent days, Pakistan's rupee has remained largely stable in the interbank market, hovering around the 221222 level even as the US dollar strengthened against other currencies.
Experts, however, believe that the latest string of measures would not have much of an impact on the rupee value.
"Dollar requirement remains high on account of import payments, and the value would be based on market fundamentals," said Khan.
"However, the spread between the open market and interbank could reduce," he added.
The State Bank of Pakistan (SBP) is evaluating a proposal to allow the selling of 10 to 20 per cent of remittances received through exchange companies to bring down the greenback rates by improving its availability in the open market. Currently, the exchange companies are required to deposit entire remittances into banks.
An SBP spokesman told media that a decision to this effect will be taken next week, adding that the central bank will also monitor the dollar rates in the open market.
"The SBP can withdraw the facility if the dollar rates don't come down despite higher inflows in the open market," said the spokesman. After taking the final decision, the central bank will issue a circular explaining the mechanism for the exchange companies for using this facility.