Challenges In Exchange Rate Stability
Keeping exchange rate stable during fiscal year is apparently a challenge for economy in Pakistan. Following independent economy rule State bank of Pakistan has left the exchange rate to market force and does not provide artificial support. Huge payments like bulky oil bills, external debt services create extreme volatility and demand pressure on exchange rate. Structural shortcoming of balance of payment seems key reasons behind rupee short living stability.
Balance of payment mainly comprises on two factors. i) Remittances . ii)Trade (Import and Exports). Remittances shoot up by $6.24bn by making a comparative difference in 2019–20 and head the table in contribution to lowering the current a/c deficit, while trade a/c witness a huge deficit of $6bn and show negative rule in current a/c balance. Economist believe that expansion of trade deficit in the time of economic recovery is understandable, but it will be obvious if economy witness such deficit year to year bases. Experts believe that sluggish growth in exports of goods and services in primary reason for expansion in trade deficit. In case of Pakistan economy there are suggestions to maintain current a/c growth in merchandise exports and boosting services exports. Failure case may cause pressure on exchange rate in year 2021–22. According to economic survey and various news letters, BOP deficit shows a nominal increase instead of substantial decrease amidst growing exports and remittances which indicates issues of external sector are yet to resolved.
New Market Places:
Since Pakistan set a higher economic growth target of 4.8pc against 3pc of last fiscal year it needs to focus on merchandise exports of goods and services. Accelerating services export is possible since amazon listing Pakistan on it seller list and Facebook launching market place in country.
Remittances inflow:
Remittances are key factor in current a/c balance, expert believes that boost is largely due to amnesty scheme offered for whitening of undeclared wealth. Unless that scheme extended to entire 2021–22 or even beyond that remittances are seems to decline. According to bureau of emigration and overseas employment exports of workforce in 2020 and first half of 2021 show a lagged effect in remittances.
Regional aspects:
If we concern about foreign direct investment, political instability in the region due to outflow of US forces from Afghanistan concern a lot, at the same time Pakistan is revisiting its bilateral investment treaties with other countries, FDI is not expected to raise dramatically.
Foreign Portfolio Investment: offers a silver lining and all credits will be serve to overseas Pakistanis who makes investment in Roshan Digital Account (RDA). Following table will represent the current situation precisely with numbers.
