Ex-Finance Minister Warns SBP’s Dollar Market Interventions Are Unsustainable

The State Bank of Pakistan (SBP) is purchasing dollars from hawala and hundi markets to keep the rupee-dollar rate between 278 and 280 and to shore up foreign exchange reserves. This was stated by former finance minister Dr. Hafeez Pasha in an interview with a private news channel. He warned that such interventions cannot replace structural reforms, particularly without incentives for exporters. Dr. Pasha criticized the government’s recent IMF agreement, which imposed a 29 percent tax on exporters. He also cautioned that Pakistan’s Real Effective Exchange Rate (REER) exceeds 100, indicating an overvalued rupee and weak competitiveness. Dr. Pasha said per capita income has declined, pushing 44 percent of the population below the poverty line. While headline inflation fell below one percent in March, core inflation remained between 6–8 percent. He attributed the decline mainly to lower food and fuel prices. He disputed the Pakistan Bureau of Statistics’ (PBS) claim of a 15 percent drop in fuel prices, arguing that government-controlled fuel rates have largely remained stable. Dr. Pasha criticized the high cost of economic stabilization. Of the expected $19.5 billion in external inflows this year, including $9 billion in rollovers from China and Saudi Arabia, only $5 billion has materialized—insufficient to meet debt obligations. On investment, Dr. Pasha pointed out that direct and portfolio inflows totaled only $1.4 billion in the first nine months, unchanged from last year, despite expectations of $10–$15 billion after the launch of the Special Investment Facilitation Council (SIFC). On creditworthiness, he noted that despite a recent ratings upgrade, Pakistan’s score stands at only 18 out of 100. Finally, he warned that the IMF’s June review could be difficult, as key economic indicators have worsened. The Federal Board of Revenue (FBR) faces a revenue shortfall exceeding Rs. 700 billion and is likely to miss its full-year target by around Rs. 1 trillion.