KARACHI: The rupee continued to make a recovery against the dollar on Monday after the decision of the government to increase the prices of petroleum products, dealers said.
The exchange rate witnessed an appreciation of 70 paisas to end at Rs199.06 against the greenback from last Friday’s closing of Rs199.76 in the interbank foreign exchange market.
The government on May 26, 2022 decided to increase the prices of petroleum products by Rs30/litre on the petroleum products. The decision has paved the way for the release of around$1 billion tranche under the Extended Fund Facility (EFF) from the International Monetary Fund.
The rupee hit the all-time low of Rs202.01 on May 26, 2022. However, after the oil price hike, it made a sharp recovery in the following two sessions.
The rupee witnessed a sharp decline due to significant fall in the foreign exchange reserves and widening current account balance.

Besides, the local currency was also under pressure due to the delay in the release of the IMF tranche. The international lending agency had asked the Pakistan authorities to remove subsidies on fuel and electricity to continue talks on a bailout package.
For the last one year, the local currency remained under pressure, owing to weak economic indicators, including ballooning current account deficit, high import payments and depletion in the foreign exchange reserves.
The rupee lost Rs44.56, or 28.23 per cent, from Rs157.54 on June 30, 2021 to Rs202.01 on May 26, 2022.
On May 23, 2022, the State Bank of Pakistan (SBP) announced a sharp increase in the policy rate by 150 basis points to 13.75 per cent from 12.25 per cent, considering the weak economic indicators.
The central bank hiked the rate on the arguments that after contracting 0.9 per cent in FY20 in the wake of the Covid-19 pandemic, the economy has rebounded much more strongly than anticipated, growing 5.7 per cent last year and accelerating to 5.97 per cent this year, as per the provisional estimates.
The coalition government inherited serious economic challenges, including falling foreign exchange reserves and ballooning current account deficit. The PML-N-led coalition government is negotiating with the IMF for a bailout package, amid the economic crisis.
Last week, the government announced to impose a complete ban on the imports to support the balance of payments position and help the rupee stabilise. However, these measures appeared futile.
Experts believed that a massive fall in the foreign exchange reserves and high import payments were the major reasons behind the free fall of the rupee.
Pakistan’s foreign exchange reserves eased to $16.15 billion by the week ended May 20, 2022. The foreign exchange reserves were at $16.161 billion a week ago on May 13, 2022. The country’s foreign exchange reserves hit the record high at $27.228 billion by the week ended August 27, 2021. Since then, the foreign exchange reserves have depleted $11.078 billion.
The official foreign exchange reserves of the State Bank of Pakistan witnessed a decline of $178 million to $10.089 billion by the week ended May 20, 2022, compared with $10.164 billion a week ago.
The SBP’s forex reserves reached to a record high of $20.145 billion by August 27, 2021. The official foreign exchange reserves also fell $10.056 billion after reaching the record high.
The official forex reserves of the SBP have been reduced to provide import payment cover for only 1½ months.
The import bill of the country surged 46.41 per cent to $65.49 billion during the first 10 months of the current fiscal year, compared with $44.73 billion in the corresponding months of the last fiscal year.
Pakistan is a net importer of petroleum products to meet its domestic demand. The country’s energy bill stood at $17.03 billion during the first nine 10 months (July-April) 2021/22, compared with $8.69 billion in the corresponding period of the last fiscal year, showing a massive growth of 96 per cent. The oil bill is around 25 per cent of the total import bill of the country.