External payments likely to keep rupee under pressure

Shahnawaz AkhterWeb Editor

11th Sep, 2021. 07:00 pm

KARACHI: The rupee is likely to remain unstable against the dollar next week, owing to the pressure of external payments and uncertain conditions in neighbouring Afghanistan.

The exchange rate is presently at Rs168.02 against the greenback by the week ended September 10, 2021. The rupee is heading towards making a new historic low against the foreign currency. The rupee made the historic low of Rs168.44 on August 26, 2020.

The primary reason for the rupee depreciation can be attributed to the ballooning trade deficit during the last couple of months. The widening of trade deficit threatened further decline in the rupee value in future.

The trade deficit for the period July–August of the current fiscal year widened 120 per cent to $7.5 billion, compared with the deficit of $3.4 billion during the same period of the last fiscal year.

The import bill is rising sharply during the current fiscal year. The import bill climbed 72.6 per cent to $12.06 billion during the first two months of the current fiscal year, compared with $6.99 billion in the corresponding months of the last fiscal year.

However, export receipts failed to grow to match the import bill. The exports grew 27.59 per cent to $4.57 billion during the first two months of the current fiscal year, compared with $3.58 billion in the same period of the last fiscal year.

The level of external payments pressure on the local currency can be gauged by the fact that the recent inflows through export, workers remittances, Roshan Digital Accounts and the International Monetary Fund (IMF) assistance failed to support the local unit.

Pakistan received $2.75 billion from the IMF under an assistance package to fight the coronavirus pandemic. Similarly, the inflows of workers remittances maintained the trend, reaching $2.66 billion in August 2021.

“This is the sixth consecutive month when inflows recorded around $2.7 billion on an average, and the 15th consecutive month they have been over $2 billion,” according to the State Bank of Pakistan.

Likewise, the overseas Pakistanis deposit around $2.114 billion by the end of August 2021 in their Roshan Digital Accounts (RDA), which are maintained at the domestic commercial banks.

Despite all these inflows, the rupee witnessed massive decline since the start of the current fiscal year. The local currency lost around 10.48 against the dollar during the current fiscal year, compared with the closing of Rs157.54 on June 30, 2020.

Political uncertainty in Afghanistan after the Taliban takeover has also escalated the demand for the foreign currency in Pakistan. The US has blocked the funds of the Afghan government, which created a payment crisis for the country.

It is feared that the smuggling of commodities and other essential items from Pakistan to Afghanistan will not only increase the prices but also further increase the import bill of the country.

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