Overview
Pakistan breaks all the records in the history by reaching at highest price of Rs. 200 against US dollar. There are multiple aspects for persistant decline of the value of rupee agianst dollar. These include increasing import bill, grear width of current account deficit and continuous reduction in the foreign exchange reserves of the State Bank of Pakistan. This is continuous decrease in value of rupee is on 11th consecutive day by an amount of 25 paisa.
Current Account Deficit shrunk to $623mn, in Apr 22; only two-thirds of Mar22 deficit of $1015mn. A rise in workers’ remittances (by $315mn) & a fall in imports (by $246mn) explain this reduction. Cumulatively, CAD reached $13,779mn during Jul-Apr FY22.https://t.co/Od8ikVdOd5 pic.twitter.com/smhwJlyTZu
— SBP (@StateBank_Pak) May 19, 2022
During previous week ending on 13th May, the foreign exchange reserves further decreased by $145 million to $10.16 billion as exports increased by 72% which left no room for the government to save its external balance.
Why Dollar price in Increasing
Analysts say that government is responsible
Analysts have also linked it to the government’s lack of clarity on its plans to arrest the decline in foreign exchange reserves, as well as the uncertainty surrounding the release of funds by Saudi Arabia, China, and the International Monetary Fund’s (IMF) bailout package. Meanwhile, analysts have also linked it to the uncertainty surrounding the release of funds by Saudi Arabia, China, and the International Monetary Fund.
To this point, the government has been unsuccessful in persuading Saudi Arabia, the United Arab Emirates, and China to lend a helping hand. Furthermore, although negotiations with the IMF are currently taking place, it is possible that they will take so long that the exchange rate regime will become even more unstable.
Interbank closing #ExchangeRate for todayhttps://t.co/lB20zSWTJX pic.twitter.com/BW8t3EoLGw
— SBP (@StateBank_Pak) May 20, 2022
According to Mettis Global, a web-based financial data and analytics service, “dollar hoarding and speculative aspects have added further fuel to the fire.”
Prohibition of Importation
Yesterday, in relation to imports, the government made an announcement regarding a “emergency” plan in which it prohibited the importation of roughly 800 items, all of which it regarded to be non-essential items. These items were categorised into 33 different groups.
Nevertheless, according to Malik Bostan, the chairperson of the FAP, the move to limit imports on its own might not be sufficient to stop the dollar’s flight, and the rupee would continue to stay under pressure until the conclusion of discussions with the IMF in Doha. While the government is taking steps to restore investor trust, he told Dawn.com that the process will take some time. “The government is taking efforts.”
However, FAP Secretary General Zafar Paracha was optimistic about the positive effects of the government’s move. His optimism was supported by the fact that the current account deficit decreased to $623 million in April.
The SBP reports that the number for April represents “barely two-thirds of the March 2022 deficit of $1,015m” latest news reported.
According to a tweet sent out by the SBP, “an increase in workers’ remittances (by $315 million) and a fall in imports (by $246 million) explain this reduction.”
After the conclusion of talks with the IMF and the release of a $1 billion tranche by the international moneylender, which has been delayed since the stalling of the IMF’s programme with Pakistan in April, Paracha said that he anticipated that the pressure on foreign exchange reserves would decrease even further.
He predicted that once this occurred, the rupee would begin to recover and that the flight of the dollar would be halted.
Stringent Measures need to be taken
In the meantime, the President of the Karachi Chamber of Commerce and Industry, Idrees Memon, has called for stringent measures to be taken at the borders in addition to curbs on imports in order to prevent smuggling, which he claims could result in a loss of revenue for the government as well as difficulties for local manufacturers.
He stated in an interview with Dawn.com that he would be meeting with Prime Minister Shehbaz Sharif at four o’clock today in order to brief him on the free collapse of the rupee and the issues facing the economy, according to latest news.
Keeping an eye on the dollar’s climb to Rs200.
In June of 2013, the value of the US dollar was sold at Rs98.50, but by the time the new PML-N government took leadership of Islamabad in November of 2013, it had beyond Rs100 and reached Rs107.5.
Ishaq Dar’s decision to lower the price of a dollar to Rs98
However, in June of 2014, the finance minister at the time, Ishaq Dar, made the decision to lower the price of a dollar to Rs98 in response to widespread public demand. The judgement was warmly accepted by the general people, but economic managers, analysts, and researchers saw it as defective and warned of the repercussions. The decision received a positive response from the general population. The artificial exchange rate was ultimately responsible for the economy’s decline, and the government’s five-year mandate came to an end with a current account deficit of $20 billion.
According to latest news resources, since 2014, the local currency has never recovered strength due to decreased exports, lower foreign direct investments, and a massive current account deficit. All of these factors contribute to the country’s overall economic weakness.
Up until August of 2014, the currency rate was at 100 rupees to one dollar. Up till the end of the 2017 fiscal year, it stayed at Rs105. The exchange rate was allowed to fluctuate after the conclusion of the PML-N government’s tenure, which resulted in the dollar reaching a high of Rs118 in June of 2018.
In August of 2018, the next administration to be formed by the PTI found that the dollar was worth Rs123. In spite of the reduction in the current account deficit to $3.5 billion in FY21, the value of the dollar continued its downward trend from this point on for a variety of reasons. The deficit for the first nine months of the fiscal year 22 is currently greater than $13 billion according to latest news.
Different rates of US Dollar from 2019 to 2022
In the first year of the administration led by the PTI, the value of the dollar increased to Rs155 in June 2019 before dipping to Rs164 in April 2020. It was at this point that Covid-19 got underway in Pakistan. The rapid flight of hot money, which totaled over $3.5 billion and was invested by foreign investors in treasury bills and Pakistan Investment Bonds, from the country within a few months led to a significant devaluation of the rupee.
However, one year later, with the improvement in economic activity and higher remittances along with greater exports, the dollar fell to Rs152 in April 2021, but the exchange rate remained at this level for a brief period of time. This occurred despite the fact that the dollar had fallen to Rs152 a year earlier, recent data said.
The rupee began its decline, which would eventually bring it to Rs156 by June 2021. The beginning of the fiscal year 22 was marked by a series of disappointing sessions for the local currency, which began a downward trend that continued each month and then each day, allowing the dollar to surpass Rs200. The price of one dollar in India in December 2021 was Rs177.
Conclusion
The effects of this depreciation have not yet been fully measured, but the implications are already clear: it has afflicted the economy with inflation, which reached 13.37 percent in April, having a detrimental influence on every aspect of Pakistani society.
