Since the appointment of New Finance Minister, Ishaq Dar on September 28, 2022, who has been very vocal that Pak Rupee (PKR) is undervalued, not only the spread between the interbank and open market rate has increased but it has also given birth to a new rate in the curb market due to short supply of greenback. Since Dar’s appointment, remittances are now down 16%YoY in October-December 2022 quarter to US$6.4 billion.
In FY22, workers’ remittances were reported at US$31 billion which is 8% of GDP one of the highest in the region. Remittances along with exports of US$32 billion in FY22 remained a major source of foreign exchange inflows for Pakistan; this fall in remittances is a key concern.
According to one of Pakistan’s leading brokerage house, Topline Securities, the decline in remittances is mainly due to the rising spread between US$ interbank rate and open market/black market rates seen in recent months.
One of the main reasons for US$ shortage is that now exchange companies are required to surrender 100% of inward remittances in interbank market as per latest SBP regulation.
Interbank rate is the official rate banks use for trading with other banks and for import & exports. This is currently hovering around PKR228 against US$ and went as low as Rs240 before Ishaq Dar announced an inquiry against Banks on currency speculation and initiated administrative measures to control official currency rate.
Currencies in the open market with local exchange companies are available only on presentation of travel documents and subject to buying limits.
Due to restriction on exchange companies black market is growing where no documentation is required. US$ is currently available at PKR260 to PKR265 in black market which is up to 20% premium to the interbank rate.
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