ECAP agrees to remove cap on dollar value

ISLAMABAD            -            Exchange Companies Association of Pakistan (ECAP) has agreed to remove the cap on the dollar value, which means that dollar value would be determined by supply and demand—one of the major conditions of the International Monetary Fund (IMF) for revival of loan programme. A representative of the exchange companies informed The Nation that the government has also agreed for free float of the dollar which will allow for a more flexible and market-driven exchange rate.

The decision comes following an important meeting of exchange companies in Karachi. He further said that it is one of the major conditions of the IMF for revival of loan programme. The decision is expected to increase the value of the dollar, but it will also put an end to the black market.

“There was artificial demand in the market as people would buy the dollar from us and sell it in the grey market,” the association’s statement said highlighting the impact of different rates. The dollar is currently being traded at three different rates — the official rate of the State Bank of Pakistan, the exchange companies’ rate, and the rate in the black market. Association said that once the dollar was allowed to trade at the market value, the customers would automatically shift from the grey market to the legitimate channels. A meeting with Deputy Governor of State Bank of Pakistan (SBP) Dr Inayat Hussain has been fixed on Wednesday morning. During the meeting, an action plan would be formulated on the situation arising from making the dollar market-based.

The plan includes measures to ensure that dollar remittance will be done through banking channels and the open market, instead of through the illegal practice of Hundi Hawala. Meanwhile, an official of the ministry of finance informed that the government had recently approached IMF for revival of the loan programme. He said that the IMF had sought additional information regarding Pakistan’s budget targets. He further said that Pakistan would accept the four major demands made by the IMF to revive the progrmme, including increase in gas and electricity prices, market-based exchange rate and additional taxes to cover the fiscal deficit.

The government would soon share the plan to control the circular debt of gas and power sectors, he added. Finance Minister Ishaq Dar had already announced that the federal government would be shortly imposing flood levy on the affluent and a significant gain tax on banks’ foreign exchange earnings to ramp up revenue. According to the official, the government may impose a flood levy ranging from one to three percent on all imports. Meanwhile, a windfall tax on lofty profits in the banking sector is also under consideration.

The government is bifurcating the profits earned by the banks in the form of alleged currency manipulation with their normal income to impose the additional tax. Prime Minister Muhammad Shehbaz Sharif on Tuesday has reiterated that the government had told the International Monetary Fund (IMF) that they were keen to complete the 9th Review Programme and wanted to conclude the terms through negotiations without any delay, so that Pakistan could move ahead.

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