Daily Times

Pakistan rupee extended losses against the US dollar for the second straight week and shed Rs1.31 (-0.75 percent) during the last week.

According to the State Bank of Pakistan, the US dollar opened at Rs175.46 in the interbank market on Monday last and closed at Rs176.77 on Friday, the last working day of the week. Within the open market, the rupee was traded at Rs176/178.50 per dollar during the week.

During the last week, the rupee set three all-time new lows against the dollar. The rupee on Monday struggled against the dollar and shed 74 paisas (-o.42 percent) in the interbank market, registering a then all-time low of 176.20 in the interbank market, breaking the previous low of 175.72, which was recorded on November 12, 2021.

The rupee on Tuesday and Wednesday recouped some losses and gained 48 paisas (+o.27 percent) and 24 paisas (+o.14 percent), respectively. However, the rupee plunged on Thursday and Friday to hit new lows of 176.42 and 176.77, respectively, against the US dollar.

Overall, the rupee’s depreciation during the ongoing fiscal year 2021-22 has been Rs19.35 and Rs16.62 in the current year 2021. The rupee is under severe pressure due to a surge in import bill and widening trade deficit. Official data revealed that Pakistan’s trade deficit ballooned by 112 percent to $20.59 billion during the first five months (July-October) of the current fiscal year 2021-22. The trade deficit was at $9.72 billion in the same months of the last fiscal year.

Pakistan’s import bill surged by 69.17 percent to $32.934 billion during July–November 2021-22 as compared to $19.468 billion in the same period of the last fiscal year. The exports of the country also surged by 26.68 percent to $12.344 billion during the period under review as compared to $9.744 billion in the corresponding period of the last fiscal year.

The falling official foreign exchange reserves of the State Bank of Pakistan (SBP) are also another reason for the rupee deterioration. According to the data released by the SBP, its official reserves declined by $244 million to $16.01 billion by the week ended November 26, 2021 as compared to $16.254 billion a week ago.

The huge import bill, widening trade deficit and external payments are still a major threat for the stability of the local currency. Pakistan’s import cover has been reduced to two months with a reduction in official foreign exchange reserves of the State Bank of Pakistan (SBP) to $16.01 billion.

Meanwhile, the Kingdom of Saudi Arabia transferred $3 billion to Pakistan for building its foreign exchange reserves. This support is in addition to a $1.2 billion deferred oil facility to Pakistan to help its balance of payment issues. The amount is likely to support the depreciating rupee. The expectation of resumption of $6 billion Extended Fund Facility by the International Monetary Fund (IMF) in near future is another factor that will help stabilise the rupee.