ISLAMABAD: Amid the declining rupee value, the Ministry of Finance and the Federal Board of Revenue (FBR) expressed their ignorance about the declaration of foreign currency by international passengers on arrival in Pakistan on the orders of the Civil Aviation Authority (CAA) that further brought local currency under stress.
At a meeting on Wednesday, the Senate Standing Committee on Finance was told that the CAA issued the orders on Aug 16 for the requirement of the Financial Monitoring Unit (FMU) ahead of an onsite visit of a delegation of the Financial Action Task Force (FATF) and Asia Pacific Group (APG) on Money Laundering. The delegation completed its visit on Sept 2.
The CAA order required all incoming international flights to ensure that all passengers disclose their foreign currency possessions through a pro forma and that airlines submit all these declarations to the CAA. Testifying before the committee, State Bank of Pakistan Deputy Governor Dr Inayat Hussain said this was one of the reasons for recent pressure on the rupee.
The SBP deputy governor said the foreign exchange companies had complained about the CAA requirement under which inbound passengers were hesitant to bring foreign currency.
CAA takes solo flight as finance ministry, FBR were not taken on board
Separately, Finance Minister Miftah Ismail at a news conference said he had expected an appreciation of the rupee against the dollar in the wake of IMF inflows but subsequent floods destroyed a large part of the cotton crop which would result in $1-2bn worth of cotton imports to meet textile export needs. Also, a 20pc loss of onions and tomatoes would need some imports and the market was reacting to such future expectations.
FBR Chairman Asim Ahmad said his agency did not have the powers to impose restrictions on the inward movement of foreign currency under the Customs Act and therefore was not part of such a decision about the mandatory declaration of the foreign currency. Minister of State for Finance Dr Aisha Pasha said she was also unaware of the CAA decision.
At this, the SBP deputy governor said “our understanding was that the CAA issued the circular with the consent of Pakistan Customs”.
When asked by the committee, an additional secretary of the finance ministry contacted the director general of the national FATF cell and got back to the meeting to confirm that arrangement was put in place to comply with the Paris-based watchdog’s requirements.
The SBP deputy governor also told the committee that about $7m had been exported by foreign exchange companies since the central bank permitted the export of dollars on Aug 15.
He said the exchange companies had sought permission to export dollars or SBP should purchase US currency due to lower demand in the local market after the dollar value dropped to Rs214 from almost Rs240.
He said the SBP on Tuesday again linked the export of dollars to prior approval after the rupee again came under pressure. He said the supply of cash dollars with the exchange companies had increased due to the devaluation of the greenback.
Senator Saleem Mandviwalla, who presided over the meeting, said the declaration of foreign currency by inbound passengers on arrival should be withdrawn but did not press on the request of SBP representatives. He, however, insisted that the central bank should not have allowed the export of dollars when it was a scarce commodity in Pakistan. Federal Minister for State and Frontier Regions Senator Talha Mehmood also seconded that the decision to export the US currency put additional pressure on the value of the rupee.
During the last fiscal year, the exchange companies exported $3.1bn equivalent of foreign currencies and then the US dollars were sold to the commercial banks through their Nostro Accounts, the SBP deputy governor said, adding that the exchange companies had purchased $4.4bn from the local clients and $2.2bn were sold in the interbank in the last fiscal year.
Published in Dawn, September 8th, 2022