CA balance incorporated: PKR kept artificially undervalued at 282.2 vs $1: Tola
LAHORE: The value of the rupee (PKR) is 249.2/USD after incorporating the Current Account balance of the Jul-April period of FY25, said Tola Associates in its latest economic outlook.
The report has pointed out that the PKR value has been kept artificially undervalued at PKR 282.2/USD as the present value of PKR is 249.9/USD.
Tola Associates have also drawn a graph depicting four scenarios: (a) First scenario provides PKR valuation as of June 30, 2024; (b) Second scenario illustrates the valuation of PKR valuation based on the actual CAD, ie, $665 million in FY24; (c) The third scenario provides PKR value based on the government's CAD projection of 0.9% of GDP; (d) and the last scenario is calculating the PKR value based on the adjusted CA projection of the government adjusted for the Jul-April FY25).
Fitch forecasts Pakistan rupee at 285 against US dollar by June, 295 by FY26 end
It further said that a 10-rupee depreciation results in a 2% increase in inflation, and vice versa. In the inter-bank market, the value of the national currency stands at PKR 282.2/USD as of 29th May 2025. Over the past week, the USD to PKR parity rate has shown a slight declining trend, whereby the PKR has devalued.
It said the export-led growth has three vectors including the agricultural sector, the manufacturing sector and the IT industry. Along with this, public financial management has an important role to play which involves expenditure control and revenue enhancement.
Pakistan's economic outlook reflects cautious optimism as inflation experienced a remarkable decline, dropping to 0.3% in Apri12025. Over the past year, inflation fell dramatically from 29.7% in November 2023 to 11.2% by May 2024 and reached just 0.7% in March 2025, a record drop within a single year.
However, the inflation outlook remains vulnerable to several risks, including additional fiscal measures to address revenue shortfalls, a potential resurgence in food inflation, and rising global commodity prices. Despite these challenges and the anticipated phasing out of the favorable base effect, the Monetary Policy Committee assessed that the current monetary policy stance is appropriate for stabilizing inflation within the target range.
Copyright Business Recorder, 2025
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
Business Recorder
21 minutes ago
- Business Recorder
No room for illusions
I'll be blunt and direct — there's no room for comforting illusions when it comes to export growth. The world thrives on exports. This isn't new, and it's not up for debate. So, let's begin with the first consensus: exports are essential for economic survival. The second consensus is clear: textiles are the backbone of Pakistan's industrial economy. They've long driven growth, jobs, and foreign exchange — but that foundation is now weakening in the absence of sustained policy support needed to remain globally competitive. Here's the third and perhaps most urgent consensus: if exports are vital — and textiles are their engine — then supporting this industry isn't optional. It must be treated as a national economic priority, not something to be strangled by misguided policies. Yet Pakistan's largest exporting sector is under siege by its own policymakers. While other countries are racing toward industrialisation, we are sliding into premature deindustrialisation. Why? Because Pakistan hasn't even begun to prioritize export growth and instead treats its most valuable export sector with neglect — and at times, outright hostility. The consequences are visible. The textile industry is unraveling, and the numbers speak for themselves. Textile exports fell 14.6% month-on-month in April 2025 and 1.4% year-on-year. Net textile exports dropped from USD 14.08 billion in FY2024 to USD 13.6 billion in FY2025, as imports of cotton, yarn, and greige fabric surged from USD 2.1 billion to USD 3.6 billion. Since the irrational tax measures of Budget 2024, over 120 spinning mills have shut down, with many others operating below 50% capacity. Millions of jobs have been lost. More and more skilled labour is leaving the country as large-scale manufacturing is in retreat, with output shrinking 1.9% during July–February FY2025, compared to a 0.4% contraction last year. With over 55% of our total exports stemming from textiles, the sector's strategic importance should be unquestionable. Yet it is being treated as expendable. Policymakers may speak of 'reforms,' but any policy that undermines exports is not reform — it is a strategic blunder. The widening gap between rhetoric and reality is pushing the sector to the brink. The problems are well known, but they must be stated again — clearly, urgently, and without euphemism. Energy is the sector's most urgent crisis - no export industry can survive without reliable, affordable supply. At the core of the textile industry's collapse is a deliberate pricing-out through inconsistent and inflated energy costs. While competitors like Bangladesh, India, and China offer gas at $6–9/MMBtu and electricity at 5–9 cents/kWh, Pakistan continues down a regressive, irrational path. Since July 2023, the gas/RLNG tariff for captive use has surged from Rs. 2,364/MMBtu to Rs. 3,500/MMBtu. On top of that, a Grid Transition Levy of Rs. 791/MMBtu raises the effective captive gas price to Rs. 4,291/MMBtu -approximately $15.38/MMBtu - nearly double what our competitors pay. Even worse, this levy is calculated based on the B-3 peak rate, which applies for only four hours a day. This isn't a miscalculation - it's an intentional policy choke. CPPs - once encouraged to fix load-shedding - are now being penalized just to spread the grid's inefficiency costs across more users. But switching to the grid offers no respite. Electricity tariffs in Pakistan are the highest in the region—12–14 cents/kWh compared to 5–9 cents/kWh elsewhere. The grid itself is unreliable, plagued by outages, stranded costs, and circular debt. Exporters face a brutal dilemma: either pay exorbitantly for unreliable power and lose competitiveness, or halt production and go out of business. This is far from a free market where exporters cannot even choose their own energy inputs. What we're witnessing isn't just a distortion— it's a deep, systemic policy failure. Then there's another policy absurdity: regressive taxation, one of the great ironies of Pakistan's tax system, treating exporters more like easy tax targets than growth drivers. The FY2025 budget pushed exporters into the normal tax regime, imposing a 1.25% advance minimum turnover tax adjustable against a 29% income tax, alongside a super tax of up to 10%. With that, exporters also face a 1.25% advance tax on export proceeds and a 0.25% export development surcharge - pushing their total tax burden up to135%. This is not only punitive but also blatantly discriminatory. Extensive research shows that such regressive taxes encourage evasion while stifling investment and growth. Textile firms, already operating on razor-thin margins, are now squeezed on liquidity, with the turnover-based tax alone drastically hampering cash flow and production capacity. Compounding the crisis, FY2025 policies have crippled domestic suppliers. The Export Facilitation Scheme previously allowed duty- and sales-tax-free access to all inputs, but the government withdrew the sales tax exemption on local supplies for export manufacturing—while imported inputs remain zero-rated. Ten months into this policy, the consequences are severe. Over 120 spinning mills have shut down, and associated industries are nearing collapse. Exporters are increasingly turning to imported yarn, whose value has surged by 225% in just three quarters—from USD 142 million to USD 462 million. This isn't just hurting our trade balance. Every day this policy remains in place, factories shut down and unemployment grows. Deindustrializing the spinning sector risks losing over $15 billion in sunk investment, in addition to the investment made under TERF. Worsening the situation, the sales tax on domestic procurement is choking liquidity and halting production. Although refundable in theory, only 60–70% of sales tax refunds are paid—and with delays over six months. The FASTER system, which promised 72-hour automated refunds, is now defunct. Manual refunds have made no progress in four years. Working capital has dried up. Here's the staggering reality: as of FY2024, the government owes the textile sector Rs. 55 billion in sales tax refunds, Rs. 105 billion in deferred sales tax, Rs. 25 billion in duty drawbacks, Rs. 100 billion in income tax refunds, Rs. 35.5 billion in DLTL/DDT dues, Rs. 4.5 billion in TUF payments, Rs. 3.5 billion in markup subsidies, and Rs. 1 billion in RCET differentials. All these funds remain stuck. Exporters aren't asking for subsidies—only timely refunds of their own money to reinvest. But the state seems dependent on private sector liquidity to manage its fiscal distress. Policies in Pakistan shift in the blink of an eye. Just rewind a few years. Between 2020 and 2022, the textile sector saw a rare surge, fueled by the TERF scheme, competitive energy tariffs, and strong post-COVID demand. Capacity grew across spinning, weaving, dyeing, and garmenting. But by 2023, this momentum collapsed—not due to global demand, but inconsistent and hostile domestic policies. Nearly 30% of capacity now lies idle, expansion plans seem elusive, and firms are either investing in non-tradables or considering relocation. This must change immediately. Today, amid Trump tariffs reshaping the global order, markets are starting to see potential in Pakistan over regional rivals. The USA has recently extended trade ties, and the now-cancelled Pak-EU Business Forum 2025 sparked hope for more trade and investment. But how can new capital come in when current businesses are struggling to survive? In short, exports are declining and FDI has dried up. The government's primary sources of dollar inflows are remittances—which, over time, suppress exports, drive up consumption and imports, and hinder growth—or external debt. But where is the sustainable dollar inflow from exports? No matter how many URAAN plans are rolled out, without fundamental policy shifts, exports won't recover. And to achieve export-led growth, the government must recognize that the way forward begins with energy. Power tariffs need to be regionally competitive - capped at 9 cents/kWh - to restore cost parity. The cross-subsidy system, which unfairly burdens industry, must be abolished. A uniform tariff should replace the existing Time-of-Use system. Exporters should be empowered to procure power directly via B2B contracts by implementing CTBCM or similar frameworks. Gas pricing must align with industrial realities. Co-generation users should be reclassified under industrial process tariffs. The flawed Grid Transition Levy requires transparent recalculation. Additionally, exporters must have the right to procure domestic gas or import LNG independently through Third Party Access. With that, the EFS must also be revised. Ideally, zero-rating of local supplies should be restored to the June 2024 framework. If IMF constraints prevent this, implementing a negative list of EFS imports—including yarns and fabrics—is the only viable way forward to ensure a level playing field. Corporate taxation needs immediate rationalization. The 1% advance tax on export proceeds, layered on top of income tax, constitutes double taxation and should be abolished. Pakistan must adopt a graduated sales tax system like India's, where raw materials are taxed at lower rates than finished goods. This will improve tax compliance, curb evasion, and strengthen competitiveness. Also, refund delays must be fixed immediately. The government should release all outstanding dues to exporters and restore their working capital to revive exports. Most importantly, every policy must be based on clear cost-benefit analysis, which is currently missing, causing conflict and chaos. The Planning Ministry pushes the $50 billion URAAN package, while FBR focuses on irrational, anti-business taxes over industrial growth. Finance Ministry claims to seek sustainable dollar inflow but approves regressive taxes and gas levies that choke the industries meant to generate it. While the world races ahead with traceability, ESG standards, and digital certification, Pakistan is pushing itself out of global value chains through inconsistent, anti-export policies. We're not just falling behind—we're cutting ourselves off. The math is clear: export growth means jobs, dollars, and stability; export decline means debt, IMF bailouts, and rising unemployment. It's high time the government shifts focus away from remittances and bailouts - and commits fully to export-led growth. There is no room for illusions anymore; the government must face reality and act decisively. Copyright Business Recorder, 2025
Business Recorder
21 minutes ago
- Business Recorder
0.01pc decline
KARACHI: Rupee depreciated against the US dollar during the previous week as it lost Re0.04 or 0.01% in the inter-bank market. The local unit closed at 282.02, against 282.06 it had closed the week earlier against the greenback, according to the State Bank of Pakistan (SBP). A rise in import demand has put pressure on the local currency, according to analysts. Meanwhile, the foreign exchange reserves held by the State Bank of Pakistan (SBP) increased by $70 million on a weekly basis, clocking in at $11.52 billion as of May 23, data released on Thursday showed. Total liquid foreign reserves held by the country stood at $16.64 billion. Net foreign reserves held by commercial banks stood at $5.12 billion. The central bank did not attribute any reason to the increase in the FX reserves. Open-market rates In the open market, the PKR lost 25.00 paisa for buying and 40.00 paisa for selling against USD, closing at 282.90 and 284.15, respectively. Against Euro, the PKR lost 4.56 rupees for buying and 4.30 rupees for selling, closing at 320.52 and 322.86, respectively. Against UAE Dirham, the PKR lost 15.00 paisa for buying and 10.00 paisa for selling, closing at 77.14 and 77.55, respectively. Against Saudi Riyal, the PKR lost 22.00 paisa for buying and 15.00 paisa for selling, closing at 75.48 and 77.85, respectively. ========================================= THE RUPEE ========================================= Weekly inter-bank market rates for dollar ========================================= Bid Close Rs. 281.97 Offer Close Rs. 282.17 Bid Open Rs. 281.66 Offer Open Rs. 281.86 ========================================= Weekly open-market rates for dollar ========================================= Bid Close Rs. 282.90 Offer Close Rs. 284.15 Bid Open Rs. 282.65 Offer Open Rs. 283.75 ========================================= Copyright Business Recorder, 2025
Business Recorder
21 minutes ago
- Business Recorder
Budget FY26: fiscal discipline without reform
Fiscal consolidation continues. FY26 is expected to be the third consecutive year of a primary fiscal surplus. This should help lower the public debt-to-GDP ratio and provide some cushion for future growth. However, economic strangulation is also likely to persist, as the government remains reliant on higher direct taxes without offering any relief to salaried individuals or the corporate sector. This is not going to be a revolutionary budget. It is simply a continuation of policies already agreed upon with the IMF. Pressure on tax revenues will remain. As interest rates decline, banks and depositors' incomes will fall — dragging down the corresponding tax collections. Income from the oil and gas sectors may decline due to reduced domestic production (to accommodate imported RLNG) and subdued global prices. Fertilizer sector margins are expected to stay suppressed. Consequently, direct tax collection at current rates may be lower in FY26 compared to key contributors the preceding year. Meanwhile, the IMF is pushing for implementation of the National Tariff Policy (NTP), but the government is hesitating. The FBR is concerned about lower collections from customs duties. The question, then, is how to plug the fiscal gap. The standard response is to go after retailers and wholesalers and talk of expanding the tax net. History suggests these efforts rarely yield results. There are gaps in the revenue framework. This is why the IMF has not agreed to reducing the effective tax burden on salaried individuals or to scrapping the super tax on corporates. The Federal Excise Duty (FED) on certain items is likely to be increased — or newly imposed, including on cigarettes and ultra-processed foods. But without better enforcement, these measures will only push more activity into the informal economy. Already, the formal footprint in sectors like dairy and fruit juice is shrinking due to recent indirect tax hikes. Poor governance and the prevalence of other taxes will dilute any benefit from reducing import tariffs. While economic theory supports lower tariffs to disincentivize smuggling, other taxes create perverse incentives. For example, the FBR collects withholding tax (WHT) and sales tax at the import stage, followed by GST and FEDs on final products. Ideally, these taxes should also be reduced — but that is wishful thinking. In fact, the FBR is proposing new, unconventional taxes — such as a 1.5 percent WHT on all imports. If the NTP is implemented, lower import prices may drive up import volumes, increasing pressure on the PKR. In response, the FBR may increase GST or FED on selected goods, such as automobiles. One area urgently needing reform is the customs department. Rampant under-invoicing not only erodes tax revenue but also undermines domestic manufacturing. Without fixing this, the effectiveness of the NTP will be limited. The FBR, however, appears desperate. There is already a shortfall of Rs 1 trillion in tax revenue during the first 11 months of FY25, and meeting the FY26 target will be even more difficult. As always, the burden will fall on the already-taxed formal sector. Non-tax revenues are expected to perform well. The SBP is likely to post another bumper year of profits, driven by over Rs 13 trillion in open market operation (OMO) injections. Last year, the SBP contributed Rs 2.5 trillion to non-tax revenues, and a similar figure is expected this year. The government is also relying on petroleum levy, which already stands at around Rs 80/liter and may be increased to Rs 100/liter. Additionally, a carbon levy of Rs 5–10/liter is under consideration. There is limited space for expenditure cuts, aside from some savings in interest payments on debt. The government has reportedly secured IMF approval for a significant increase in defence spending. However, negotiations are ongoing regarding the size of the development budget. Regardless of what is initially allocated, it is likely to be trimmed later if tax revenues from retailers and the real estate sector do not materialise. In conclusion, the upcoming FY26 budget reflects a cautious, IMF-driven approach—prioritizing fiscal consolidation over transformative change. While primary surpluses and robust non-tax revenues, bolstered by SBP profits and petroleum levies, offer some macroeconomic stability, the continued reliance on existing taxpayers and indirect taxes risks stifling growth and further entrenching informality. Without bold reforms—particularly in customs enforcement and tax administration—structural weaknesses will persist, limiting the effectiveness of flagship measures like the National Tariff Policy. Though lower commodity prices and fiscal discipline may support modest growth in FY27 and FY28, the absence of meaningful structural change leaves Pakistan's fiscal trajectory precariously balanced. Copyright Business Recorder, 2025
