ISLAMABAD: The State Bank of Pakistan (SBP) on Sunday rejected media reports which stated that capping the price of the US dollar caused the country losses worth $3 billion in exports and remittances, saying that a decline in both was due to "exogenous factors."

In a major sign that it was willing to swallow the bitter pill and agree to the International Monetary Fund's (IMF) tough conditionalities, Pakistan's foreign exchange companies last week removed the cap on the US dollar. The price of the rupee, as a result, fell to a 24-year-low against the greenback, compounding problems for the South Asian country. 

Local media reports had claimed that capping the price of the US dollar had dealt Pakistan losses of $3 billion in exports and remittances as people preferred to send remittances to Pakistan via illegal channels, which offered a better rate. 

In a press release, the SBP rejected the reports, describing them as "incorrect." It added that Pakistan's exports were facing headwinds due to moderating demand in international markets as the country's trading partners go through a period of monetary tightening. 

"For instance, US Federal Funds rate has surged from 0.25 percent in March 2022 to 4.5 percent to date; suggesting a noticeable global monetary tightening," the SBP said. 

The central bank said inflation has been "significantly higher" in developed countries, eroding people's purchasing power. The SBP also said that devastating floods last year and ensuing supply disruptions are also to blame for Pakistan's dwindling exports. 

"In this backdrop, linking decline in exports to relatively stable exchange rate is not appropriate," it added. 

It said workers' remittances were gradually "tapering off" from the all-time high figure of $3.1 billion in April 2022 due to Eid-related flows.  

"This decline is primarily attributed to global economic slowdown as higher inflation in developed countries has led to higher cost of living abroad, thus reducing the surplus funds that could be sent back to homeland as remittances," the central bank added.

Pakistan's foreign reserves have dipped to an alarming eight-year low of $3.6 billion, barely enough to cover three weeks of imports. Islamabad hopes the resumption of the IMF's stalled loan program would help unlock inflows from allies and multilateral organizations.