Demand for riyal surges amid rush for Umrah

KARACHI: Contrary to a general perception of a severe shortage of foreign exchange, Pakistanis in unprecedented numbers are leaving for Saudi Arabia to perform Umrah despite a massive surge in its cost.

Since Pakistan has been facing a serious shortage of foreign exchange, it was expected that Pakistanis may not go in large numbers this year even when the Umrah cost has also increased by 60 to 80 per cent compared to the last year mainly due to the massive devaluation of local currency.

In FY23, the rupee lost about 54 per cent against the US dollar.

However, foreign exchange companies are easily meeting the high demand for Saudi rials and other currencies, barring US dollars, as everyone wants to perform the religious ritual during the holy month.

Each year about one million Pakistanis perform Umrah and about 100,000 used to perform Umrah in Ramazan alone.

“There is no shortage of foreign currencies in the open market while Saudi riyal is easily available as much as a customer needs,” said Malik Bostan, Chairman Exchange Companies Association of Pakistan.

He said no tickets are available for Saudi Arabia for Ramazan as all flights are booked. “I did not think that fewer people are travelling for Umrah this year compared to previous years,” he said, adding that he could hardly get a ticket.

In another development, he said the inflow of foreign currencies has increased substantially as overseas Pakistanis in large numbers are visiting their motherland to spend Ramazan and celebrate the Eidul Fitr with their families.

He said the exchange companies were using these currencies to buy US dollars from Dubai. “We estimate that on an average $8 to $10 million foreign currencies are being sold in Dubai to bring back US dollars,” said Bostan.

Earlier, the exchange companies were used to sell their foreign currencies in Dubai to bring back equal amounts of dollars but an artificial rate cap imposed by the PMLN-led coalition government created a wide gap between interbank and open markets, which resulted in the emergence of the black or grey market. Other foreign currencies follow the same dollar path for their value in PKR.

The illegal market was offering much higher prices of foreign currencies which caused a 12pc decline in remittances during FY23.

However, the uncapping of the exchange rate brought the dollar rate to a level offered by the illegal market. This massive rupee devaluation encouraged overseas Pakistanis to sell their holdings in the local market and remit their earnings through legal channels.

The inflows in the banking market also increased as the exporters started selling their proceeds with the record high price of dollars which hit a new peak of Rs287. In recent weeks, the dollar kept hovering around Rs280-285 which was enough to attract export proceeds.

Some currency experts fear another round of rupee devaluation, particularly after Finance Minister Ishaq Dar cancelled his visit to Washington to attend spring meetings of the World Bank and International Monetary Fund starting from April 10.

Mr Dar once again changed his tone and said Pakistan is a member of the IMF and not a beggar.