Noor Israr describes an unstoppable downward slide
After showing a robust recovery, Pakistani is once again on the path of an unabated downslide of rupee and it is nearing an all-time low against the dollar after falling 74 paise in the interbank market. It closed at Rs.239.65 per dollar — a depreciation of 0.31 per cent from yesterday’s close of Rs.238.91. The rupee had reached a record low of Rs.239.94 per dollar on 28 July. Experts point out that this situation has come to pass due to the apparent paralysis of inaction shown by the government through the IMF programme is now back on track. It is now widely known that the government has shown a marked inability to intervene through intervention in an illiquid market like Pakistan can have many benefits. It is now reported that the Pakistani rupee has already become the worst-performing currency in the region.
There is another angle added to the situation as some economic analysts suggest that the rupee was losing value because of smuggling into Afghanistan. It was mentioned that people coming from the neighbouring country stated at the time of crossing over that they had $100,000 for transit trade. However, they had no foreign currency with them and instead, they took $100,000 with them on their way back. They suggest that the government restrict the number of dollars sold to those leaving Pakistan and in this connection, some foreign currency dealers were arrested in Rawalpindi-Islamabad. Analysts also object to the actions taken by the State Bank of Pakistan as instead of only imposing fines, it should remove presidents and treasurers of banks that were found to be involved in speculation as was done in Bangladesh.
Up to now, the rupee has lost about 26 per cent of its value which is devastating for the beleaguered country. The dollar has gained 8.12 per cent against the rupee in the last 12 sessions, 36 per cent since its CY21 peak on 14 May, and 13.9 per cent since the start of the new fiscal year. The government has so far not been able to arrange dollar inflows to improve the country’s foreign exchange reserves, which have been declining each week. The inflow of $1.2 billion from the IMF loan could not encourage other creditors to follow the Fund’s support programme for the economy.
Unabated Downslide Of Rupee
There is, however, another angle that has pointed out the decline of the rupee due to the rising import bill with such circles calling on the government to impose a ban on the import of non-essential and luxury items. The data reveals that Pakistan’s oil and eatables imports grew 11.4% in the first two months of the current fiscal year to $5.08 billion from $4.56 billion a year ago. The oil import bill has increased by over 7 per cent to $3.30 billion in July-August from $3.08 billion over the corresponding months of last year. The food import bill rose by over 21% to $1.78 billion in the two months under review from $1.47 billion a year ago to bridge the local production gap.
It is also mentioned that some traders were importing more items than needed so they could hoard and sell them once the duties were re-imposed, therefore, the pressure on the rupee in the interbank market will remain as long as duty-free imports are allowed. These circles caution that if the government does not intervene then the rupee could fall to 250 with the chances of further decline remaining imminent. They also point out that the Umrah season has started due to which the demand for foreign currencies has increased.
It is also mentioned that the pressure on the rupee is because friendly countries, who had promised to give money, have not done so due to which sentiments have changed. It is also attributed the rise in smuggling to the government’s decision to impose heavy regulatory duties on the import of non-essential and luxury items which led to pressure in the open market while dollars in the interbank market had nearly dried up. Exchange companies which sold between $25-30 million a day are not able to sell as much at all now. We are making efforts to ensure that the dollar rate does not rise beyond Rs.240 in the open market but the rates in the interbank and grey markets are going up.
There is also a suggestion that the rupee would remain under pressure until Pakistan’s current account deficit was reduced or inflows were received from friendly countries as considering global financial conditions, getting funds on a commercial basis and through Eurobonds is not possible. The devastation caused by floods further shattered the hope of economic recovery anytime soon increasing pressure on the rupee. The situation is that the traders had to make dollar payments in cash to exporters in Afghanistan and Iran and since banks in those countries had been put under sanctions by the US, Pakistani traders had to resort to purchasing dollars from the black market. The Weekender