The year 2022 in Pakistan witnessed stocks and politicians fall in sync, while commodity prices and the value of the US dollar against the Pakistani rupee rose in unison. Before the turn of the calendar, we wanted to understand why the greenback climbed against the Pakistani rupee by around Rs50 or 28.47% in 2022. But there was a problem!

Politicians would explain the phenomenon using the lense of conspiracy theory and blames ridden language. So, we decided to hear straight from the horse’s mouth: the people working in the money market. The representatives of currency dealers told us the real story behind the rise of the US dollar in 2022. They also predicted how the value of the US dollar will move in 2023.

“The year 2022 was very bad for our rupee,” Zafar Paracha, the general secretary at the Exchange Companies Association of Pakistan (ECAP), told Aaj News. “In January, the exchange rate for the dollar was Rs178 and today it is Rs225 in the inter-bank.”

Too many cooks to spoil the broth

Pakistan saw three different finance ministers this year, each with a completely different approach toward economic challenges. PTI’s Shaukat Tarin, who defended the decision to cut fuel prices in open defiance to the agreement he had signed with the International Monetary Fund (IMF), took leave with the ouster of Imran Khan from the PM Office. His successor Miftah Ismail made a few “tough decisions” to steer the country out of crisis and convinced the IMF that the government would implement everything Imran Khan had signed up for and more.

Miftah stayed in office only for six months — enough time to make ground for the return of Dar, who took over in the final days of September 2022. The four-time finance minister has maintained that Pakistan won’t default on its debt obligations and that the rupee will strengthen with the US dollar falling to below Rs200.

Before Dar’s return, the value of the US dollar approached the Rs240 mark twice in a year— first at the end of July and then in September days before Dar was sworn in.

Widening gap between interbank and grey market rates

With Sharif’s trusted finance czar back in the office, the US dollar never rose past the Rs230 mark — no less than a feat, but not really! There is a vast gap between inter-bank or official rates, open market rates, and the grey or black market rates. Most people seek dollars from the grey market when they can’t get them in the open market. Interbank rates apply only to bank transactions.

“Right now [the US dollar] is at Rs225 in the inter-bank market, at Rs235 in the open market, and at Rs255 in the grey market. So, it is a huge gap because of which the inflows have gone down and the dollar is short supply,” Paracha said referring to the fact that common folks are unable to buy the US currency in the open market.

Paracha said currency dealers were trying to help those genuinely in need, such as tourists or patients seeking medical treatment abroad.

“But right now the situation is very bad.”

Why people prefer black market

The US dollar is available to genuine and authentic buyers but such buying often involves a process that has been put in place to ensure transparency, says ECAP Chairman Malik Bostan.

Bostan spoke to Aaj News after addressing a press conference in Karachi on Wednesday.

He said the main reason for many people’s decision to opt for the black market was the restrictions imposed on the purchase of dollars. Biometric verification, video recording, and reporting to the Federal Board of Revenue and the Financial Monitoring Unit are mandatory requirements that you need to meet before you are allowed to buy dollars, he said.

Government officials ask questions about the source of money, the purpose of buying dollars, and the identity of the buyer.

“So those people, who go to the black market, are making hue and cry,” Bostan said. “The remaining lot, especially people traveling for health, education, and tourism are getting the US currency.”

Currency smuggling

Bostan told the press conference that the dollar shortage was caused by the monthly $2 billion outflows to Afghanistan despite the government’s move to stem currency smuggling. “In the past, there were no restrictions as one person could buy up to $50,000 in a day. Over the past 25 years, people have taken $180 billion outside Pakistan by taking advantage of laxed regulations,” he said.

The ECAP chairman praised Dar for bringing down the dollar rate.

“The actual price of the US dollar is below 200,” he said adding that in the South Asian region no other country allowed a similar exchange rate. Afghanistan with international sanctions maintained an exchange rate of around 88 Afghani per US dollar while the Indian and Bangladeshi currencies traded at around 95 rupees and takas, respectively, against the US dollar.

“And here it is being traded for Rs225. We don’t have worse conditions” compared to those nations,“ he said.

Will US dollar rate increase in 2023?

We asked the two leading money dealers if the US dollar rate against the Pakistani rupee will increase in the year 2023.

Bostan was more hopeful about Pakistan’s economic prospects and predicted the rupee may strengthen in the next calendar year.

He urged politicians to put the national interest above their political goals. It should be pehly riyasat phir siasat. “If politicians come together on key issues, the US dollar will fall so quickly that no one can even imagine.”

Paracha, however, sees tough economic challenges ahead as Pakistan is bound to make debt payments of $75 billion in three years and $30 billion in six months.

He claimed that individual investors and the friendly countries, which had promised help, had backtracked. “They have followed a wait and see policy. It will take two to three years to release past pressures.”

Inflation

Paracha and Bostan also blamed the high dollar rate on rising inflation in the country.

Inflation rose to 23.8% on a year-on-year basis in November. Prices of basic commodities have also skyrocketed following the July-August floods that swept away crops in Punjab, Sindh and Balochistan.

When asked about the impact of the slumping economy on the rate of the US dollar, Paracha lamented the state in which the people were living. “The point is that the common man is dead. Jism aur sans ka rishta rakhna mahal hogaya hai” — He is gasping for life.

Paracha believes the real inflation rate was much higher than the government statistics.

Bostan claimed the US dollar would depreciate if the government used local currency and a barter system for trade with Afghanistan. He stressed the need for using a scanner system on borders to check currency smuggling.