Pakistan devalues rupee, goes for floating rates

Islamabad, May 19: Pakistan has announced devaluation of its currency as part of the much-awaited Unified Foreign Exchange Rates System w...

Islamabad, May 19: Pakistan has announced devaluation of its currency as part of the much-awaited Unified Foreign Exchange Rates System which is expected to benefit thousands of people whose foreign exchange accounts in Pakistani banks are laying frozen for the last one year.

In a notification late yesterday, the State Bank of Pakistan SBP abolished the official exchange rate for foreign currencies and announced that the inter-bank floating rates shall now apply to all foreign exchange transactions.

The move means that official rate of rupees 46 to a US dollar has now been abolished and the inter-bank floating rate, which is hovering around rupees 50.50 to 51.00 to a US dollar will now apply to all foreign exchange transactions.

The new rupee rates will also be applicable for converting frozen foreign currency accounts into Pakistani rupee. Pakistan had been following three exchange rates for the last one year as apart from the official rate and the inter-bank floating rate there was also a compositeexchange rate which was a mixture of official rate and inter-bank rate.

The latest move is likely to lead to hike in prices of petroleum products and wheat, the import of which was allowed at the official rate of rupee 46 to a dollar till date.

Full convertibility of the Pakistani rupee is one of the major conditions of a package reached with International Monetary Fund by the present government after coming to power in February 1997.

The abolition of the official rate will benefit holders of frozen foreign currency accounts as they can now withdraw their foreign exchange at more than 10 per cent higher rates.

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The Nawaz Sharif government had frozen thousands of foreign currency accounts in Pakistani banks amounting to nearly US 11 billion which were held by both resident and non-resident Pakistanis immediately after Pakistan carried out nuclear tests on May 28 last year.

The move was considered an attempt to save the flight of foreign currency out of the country in view of very precarious levelsof foreign exchange reserves

Until now these accounts holders were allowed only to withdraw in Pakistani rupees at official rates and though more than half of these amount has already been either withdrawn or converted into long-term bonds, more than five billion US dollars are still lying frozen, the bank announcement said.

The move by State Bank of Pakistan comes less than a month before the Federal budget for the year 1999-2000 is to be presented before the Parliament by the middle of next month.