The Pakistani rupee has hit its lowest against the US Dollar, dropping 84 paisas on Tuesday against the US dollar in interbank trading and closed at 168.94 compared to Monday’s closing at Rs168.10.
This is a depreciation of 0.5 per cent in a single day, noted the State Bank of Pakistan.
— SBP (@StateBank_Pak) September 14, 2021
It had previously reached a record low of 168.43 on 26th August 2020, which has been surpassed, with Rupee dropping 84 paisas on Tuesday.
The recent downward spiral began almost in the mid of May 2021 when the rupee took a downward turn after reaching a high of 152.19 a dollar. Today the Rupee has come down 9.9 per cent since its high on 14th May 2021, and 6.7 per cent since June 2021.
PKR closed at all-time low against US Dollar
— Arif Habib Limited (@ArifHabibLtd) September 14, 2021
It is worth mentioning that things are different this time, as the foreign exchange reserves are at their record high, and thus the major role is seemingly played by the rising import bill.
Similarly, the fear of a higher Current Account Deficit is increasing the demand for the US dollars, depreciating the Pakistani Rupee.
The Rupee depreciation is caused by the concerns regarding the supply of the dollars, leading to panic accumulation of the greenback, Pakistan-Kuwait Investment Company Head of Research Samiullah Tariq told Geo news.
Increased international commodity prices are the major reason for the increase in import bills, leading to the widening trade gap despite the increase in exports.
The second month of the current fiscal year 2022 saw the widening of the trade deficit by 133 per cent, data released for the month of August 2021 showed.
The provisional data showed that the imports increased two times more than the increase in exports as the economy reopens. The trade deficit for August 2021 reached $4.05 billion compared to August 2020 when it was $1.740 billion.
The exports for August 2021 reached $2.26 billion compared to $1.58 billion in August last year, showing an increase in exports 42.5 per cent year-on-year. On the other hand, on a month-on-month basis, the exports went down 3.5 per cent from $2.34 billion in July 2021.
The imports, on the other hand, saw an 89.9 per cent increase year-on-year, reaching the highest ever of $6.31 billion in August 2021, and on a month-on-month basis, they increased 12.7 per cent from 5.6 billion in July 2021.
This trade gap has fueled the rise in CAD, which has been widening since the last three months, and the data for August is expected to reveal further widening.
In January the CAD was $229m, $50m in February, $47m in March, and $188m in April, but in May it widened to $650m and surged to $1.62bn in June, and by the end of FY21 Pakistan had reached the CAD of $1.83bn. For the month of July, the CAD came to $773 million.
Fuelling this economic deficit was the Afghanistan situation. Afghanistan has been heavily reliant on foreign assistance to meet government expenditure, however with the Taliban’s ascend to power, the foreign powers have frozen the country’s assets, leading to the closure of the sector in the country. This ended the daily inflow of $5-7 million daily to Pakistan.
Afghan families based in Pakistan according to various experts are turning PKR to USD and sending them back to their families back home where dollar supply is low due to reasons, resulting in increased demand for the dollar, taking a toll on Rupee.
While all this happened, SBP has not taken any action yet, as the central bank under the current regime has left the currency to be determined by market forces.