KARACHI: Political uncertainty and exchange rate fluctuations continue to hit local currencies with a loss of 48 paisa compared to the US dollar on Tuesday.
The greenback price rose to Rs176.23 in the interbank market after losing 11 paisaas the previous day.
Despite high entry into the Pakistan State Bank (SBP) account, the rupee was unable to recover and this was due to the high demand for dollars from importers.
"The rupee gains a temporary gain compared to the dollar but most of the time the US currency remains strong," said Atif Ahmed, a currency trader in the banking market.
The US dollar was rising in the international currency market mainly due to a four-fold increase in oil prices. Oil prices are in dollars so the demand for US currency is high around the world.
Pakistan, on the other hand, pays a very high amount of oil imports, which has created critical trade and current account inequality.
During the first half of 2021-22, the current account deficit has risen to $ 9 billion and could rise even more in the remaining months of this financial year.
The SBP has not yet released the current January account number.
"Signs are characterized by high trading and current account shortages as high purchases will increase current account shortages and that is why the market may be able to choose a local currency," notes Atif.
Recent $ 1bn inflows from the IMF and a $ 1bn profit of sukuk have improved SBP savings but seen a $ 3bn outflow from August 2021.
The market fears that growing economic ties in Saudi Arabia and India could have a negative impact on Pakistan as the highest earnings in the Arab world.
Pakistan relies heavily on exports and more than exports. The country expects to receive $ 30bn in FY22 as $ 18bn is sent home by Pakistanis overseas during July-January.
"If Pakistanis in Saudi Arabia lose their jobs, it will create a major problem in Pakistan and the dollar's dominance will be worse," he said.
The Rupee saw a sharp decline from Rs123 against the US dollar in August 2018 to Rs177 compared to the US dollar in December 2021.
By Mehtab Haider December 07, 2021
An image that represents others.
An image that represents others.
SLAMABAD: The value of the Pakistani rupee has dropped by 30.5 percent compared to the US dollar over the past three years and four months under the Pakistani government Tehreek-e-Insaf (PTI).
The rupee saw a sharp decline from Rs123 against the US dollar in August 2018 to R177 compared to the US dollar in December 2021, a decrease of 30.5 percent over the past 40 months. This makes it one of the most cost-effective cuts in the country's history. The only other significant decline occurred when Dhaka fell and Pakistan's currency was reduced by 58 percent from Rs4.60 to Rs11.10 against the US dollar in 1971-72.
Many private economists argue that the latest inflation was reported by the IMF in previous actions and has nothing to do with the fundamentals of a major economy.
Dr Ashfaque Hassan Khan, a former economic adviser, said the economic policy plan was completely disbanded as the country's monetary policy now adhered to monetary and exchange policies. He said strong inflation and declining exchange rates had led to an increase in inflation, public debt and debt repayment. Strong evidence has shown that the one per cent monetary stimulus has increased the pressure on inflation by 1.3 per cent in the case of Pakistan.
Experts say that the sharp decline in inflation under the PTI government exacerbated inflation pressure, adding that two major factors contributed to inflation. Firstly, food and commodity prices and fuel prices have risen sharply in international markets, and secondly, a 30.5 per cent exchange rate has also led to a sharp rise in inflation.
Some studies by economists suggest that a 10 percent decrease in inflation boosted the Consumer Price Index (CPI) by 0.6 percent. As a result, a 30.5 percent decline led to an increase in inflation pressure of about 2 percent. This indicates that since inflation stands at 11.5 percent monthly, about 2 percent is due to declining exchange rates.
Analysis of the regional currency compared to the US dollar shows that the currency of Pakistan is significantly lower compared to the other.
The Indian rupee stood at 75.39 against the US dollar. The Indian rupee stands at Rs70.09 against the US dollar in 2018, Rs73.66 in December 2019, Rs74.53 in March 2020 and Rs74.57 in April 2021.
In the case of Bangladesh, Bangladeshi Taka stands at 85.76 against the US dollar and went up about 84 to 85.9 on average over the past two years.
Meanwhile, the Pakistani rupee continued to depreciate in value and stood at Rs177 against the US dollar in December 2021. It declined sharply from Rs123 to Rs177 against the dollar over the past three years and four months.
Rupee and instability
During the Musharraf-Shaukat Aziz regime between 1999 and 2007, the country's currency remained stable and moved at about Rs60 against the US dollar. When the PPP-led government came to power in 2008, the rupee fell due to a growing account shortfall and dropped to Rs80 in just a few months.
Then, the rupee changed again against the dollar gradually after Pakistan joined the IMF program and remained at about Rs90 compared to the US dollar from 2008 to 2013. In June 2013, the value was Rs98.5 against the US dollar.
Then, the PMLN came to power in 2013. In November 2013, Pakistan's currency stood at Rs107.5 against the US dollar. The policies of former Finance Minister Ishaq Dar have reduced the rupee to Rs98 against the US dollar in June 2014.
The Pakistani rupee remained stable at Rs100 in August 2014 while changing slightly and remained at Rs105 against the US dollar in 2015-16 and 2016-17. Subsequently, former Finance Minister Miftah Ismail approved the rupee exchange rate against the dollar and rose to Rs118 against the US dollar in June 2018.
The rupee continued to flow smoothly during the interim administration of the ruling government. However, when the PTI-led state joined the government in August 2018, the rupee stood at Rs123 against the US dollar.
Then, Pakistan joined the IMF organizer and the rupee averaged even lower and stood at Rs155 against the US dollar in June 2019. Until April 2020, the rupee continued to decline to Rs164 against the US dollar. In August 2020, the rupee hit R167.7 against the US dollar.
For a short time, until April 2021, the rupee strengthened and remained between Rs152 against the US dollar. However, as of April 2021, Pakistan's currency has seen a decline in the value of the new currency as the rupees averaged Rs156 against the US dollar in June 2021, Rs168 in September 2021 and Rs170 in November 2021. In December 2021, the rupee exceeded Rs156. -Rs177 compared to US. dollar.
Inflation
On average, CPI-based inflation fell by about 8.2 percent between 1991 and 2020-21. However, now CPI-based inflation has exceeded two digits and affected 11.53 percent in November 2021. There are other factors contributing to higher inflation but the sharp decline of the rupee has also played a major role in inflation over the past few months. .
Economist Dr Zafar Mahmood said the increase in foreign exchange helps countries work more efficiently, but with more money set, there is little room for the country to stabilize its finances. Pakistan needs to build its own foreign exchange reserves with debt-generating income such as exports, withdrawals, and foreign investment.
Sajid Amin Javed, an economist at SDPI, said the decline in inflation over the past three years had accumulated over the past eight years because the rupee price had been illegally increased.
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