Exporters in Pakistan are increasingly turning to forward dollar sales to hedge against risks linked to the country’s managed exchange rate, currency dealers reported. Despite a slight appreciation of the Pakistani rupee against the US dollar, exporters remain cautious and prefer to lock in future exchange rates amid fears of potential volatility once currency controls are eased. Dealers in the inter-bank market warn that relaxing exchange rate management could lead to shifts in the rupee-dollar value, with additional concerns fueled by anticipated scrutiny from the International Monetary Fund (IMF) over currency policies.
The Exchange Companies Association of Pakistan has observed daily gains in the rupee’s value against the dollar, typically between one and three paisas. However, currency dealers have noted a significant 50 to 60 percent drop in cash dollar sales by exchange companies. Some major open-market dealers report that dollar inflows have nearly dried up, with overseas Pakistanis holding back dollars that were previously sold openly, a new and worrying trend. It is speculated that some dollars meant for the open market may now be diverted to informal channels.
Authorities, including the State Bank of Pakistan (SBP) and the government, continue to maintain strict oversight to prevent illegal currency transactions. Sales of dollars by exchange companies to banks have also declined sharply, alongside a drop in inflows through authorized money changers. Nonetheless, remittance inflows through formal banking channels have remained stable compared to the same period last fiscal year. Bankers clarify that this decline in open market dollar sales is unrelated to any changes in government incentives for banks or exchange companies, supported by official data showing no decrease in remittances during July and August.
While government efforts to lower the exchange rate have yet to yield the desired outcome, crackdowns earlier this fiscal year contributed to the dollar weakening against the rupee in both inter-bank and open markets. The currency’s stability has been bolstered by higher foreign exchange reserves held by the SBP, steady remittance inflows, and improved diplomatic relations with key partners such as the United States and China.
Despite these positive factors, the growing reliance on forward contracts by exporters reflects lingering concerns about exchange rate management. The SBP has opted to maintain market liquidity instead of artificially suppressing the rupee-dollar rate. Dealers note that the central bank has reduced its dollar purchases in the inter-bank market to avoid putting downward pressure on the exchange rate, but the possibility of renewed intervention remains a factor encouraging exporters to hedge through forward sales.