A tax on real estate has resulted in a drop in foreign investment in properties across Pakistan, which is slowing down foreign currency inflows and appreciating the dollar against the rupee in the open market.
Currency dealers said the dollar rose as high as Rs106.20 on Tuesday and settled at Rs105.90, reflecting the supply and demand gap in the open market. It remained stable in the interbank market.
The US currency gained Re1 against the local currency within 15 days, indicating its high demand for a number of reasons.
Currency experts said the threat of a sit-in by Imran Khan in Islamabad has given rise to speculations. “Political instability and confusion have gripped the currency market. A short supply has widened the supply-demand gap, helping the greenback gain against the local currency,” said Forex Association of Pakistan President Malik Bostan.
He said political uncertainty and the tax on real estate transactions have hurt inflows from Britain and other European countries. The depreciation of the pound and the euro is also a reason for low remittances from the two destinations.
“Inflows of the pound and the euro have dropped as their deprecation has discouraged senders,” Exchange Companies Association of Pakistan General Secretary Zafar Paracha said. Remittances in these currencies now amount to less than what they did just three months ago, he added.
He said remittances from Saudi Arabia have also dropped, which created a shortage of the greenback in the market, resulting in the foreign currency gaining against the rupee.
The country has been facing a difficult situation since global oil prices fell sharply. It contained the national oil bill, but also curtailed job opportunities for Pakistanis in oil-rich countries.
“The situation is strange as investors are confused about options to park their money. The stock market is highly erratic, real estate has lost charm, and the pound and the euro have been falling drastically in the international market,” said Anwar Jamal, another currency dealer in the open market.
He said the only option for investors is to buy the dollar to keep the value of their savings from eroding.
“Buyers were booking dollars in advance and getting dollars after two to three hours from the open market,” he said.
The dollar can further appreciate against the local currency in coming months although the country has record-high foreign exchange reserves of $24 billion, currency dealers said.