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Rupee in trouble


Rising oil and food prices are here to stay


Karachi: Global markets are in turmoil as stocks plummeted, metal prices hit record high and oil flirted with $140 a barrel amid widespread economic fallout from Russia’s invasion of Ukraine.

Experts and analysts believed the financial shockwaves from the volatile international markets are all set to adversely impact Pakistan’s economy. They said that Pakistan’s reliance on imported energy and a surge in commodities prices in the international market would keep the Pakistani rupee under pressure.

Oil prices have been a key driver of the extreme volatility in markets since the Russian invasion, with Brent at $111 per barrel at 3.30pm PST on March 11, 2022, days after touching a 14-year high of $139.13 on March 7, 2022.

Arun Leslie John, Chief Market Analyst, Century Financial, told BOL News that the rupee tumbled against the dollar after global oil prices surpassed $130 for the first time in more than a decade on March 7, 2022.

“Global investors jumping to safe-haven currencies like the dollar and surging oil prices are likely to weigh heavily on the Pakistani rupees,” he said.


The rupee fell to the historic low of Rs178.63 to the dollar on March 10, 2022. The currency previously witnessed an all-time low of Rs178.24 on December 29, 2021.

The local currency remained under pressure since the start of the current fiscal year. The rupee lost Rs20.97, or 13.31 per cent, from Rs157.54 against the dollar on June 30, 2021 to the current level of Rs178.51 on March 11, 2022.

Pakistan’s oil import bill is linked with the international oil prices and any surge in the oil prices results in high import bill and depreciation in currency.

The import bill of the petroleum group recorded an increase of 107 per cent to $11.7 billion during the first seven months of the current fiscal year, compared with $5.64 billion in the corresponding months of the last fiscal year.

Amid the continuing economic woes, Pakistan’s current account deficit (CAD) rose to an all-time high of $2.56 billion in January 2022.

“The CAD rose sharply due to imports in kind that are fully financed. The deficit is expected to remain high given the international crude benchmark touched $138 per barrel, last seen in 2008. As the crude oil prices keep surging amid worries of Western sanctions on Russian oil, Pakistan’s CAD will increase indicating it’s building up debt to the rest of the world that would have a negative impact on the Pakistani rupee,” John said.


As the holy month of Ramazan is nearing, analysts anticipate that domestic demand for commodities will also surge.

Prime Minister Imran Khan during his visit to Moscow agreed to purchase two million metric tonnes of wheat from Russia to build the country’s strategic reserves amid a rise in local demand.

Commodities, in general, have been red hot since Russia’s assault, with gold surpassing $2,000 an ounce. Aluminum, copper and palladium prices kicked off the week with record highs and nickel jumped by over 25 per cent in value.

Wheat futures reached record highs on March 8, 2022, following a 14-year high at the end of last week, with Chicago futures for grain closing 41 per cent higher than the previous week at $12.00 a bushel. That jump marks the biggest gain over six decades.

Russia and Ukraine account for around 29 per cent of global wheat exports, 19 percent of corn supplies, and 80 per cent of the world’s sunflower oil exports.

“The sanctions imposed by the West will prevent Russia from selling its produce, which will result in the rise of prices of grains. Pakistan would then have to buy wheat from the international market at a premium price that would put downward pressure on the rupee,” John said.


A A H Soomro, an independent economic analyst, said that the rupee will remain under tremendous pressure as it is market-driven and the commodity prices are stubborn upwards.

“If emerging market currencies start declining, oil prices remain in triple-digit, wheat and LNG remain at a sky-high level, the rupee will see further weakness,” Soomro said.

“Wheat is a necessity and cannot be replaced. Importing it at high prices would further stress our imports and cause debt to our foreign exchange reserves. A lot depends on the International Monetary Fund [IMF] and China’s financial assistance,” he said.

Prime Minister Imran Khan’s government began talks with the IMF for the next $960 million tranche at a time when the government is facing critical political, economic and foreign policy challenges in the middle of its fourth year in power.

John said Pakistan remains vulnerable to possible flare-ups of the pandemic, tighter international financial conditions, a rise in geopolitical tensions, as well as delayed implementation of structural reforms.

“In an event where the IMF declines to bail out Pakistan, it would result in the rupee plummeting to new lows,” he said.


The country, which is already struggling with double-digit inflation, weak currency may further strain consumers. To provide relief to the masses, the prime minister reduced fuel prices by Rs10/litre, Rs5/unit on electricity till budget in June despite a steep global rise in the cost of oil, with the price differential being covered by the government.

“Pakistan’s relief package may not be well accepted by the IMF and it has also raised concerns for oil companies operating in Pakistan, which have warned of a ‘catastrophic disruption’ in supplies as a result of the revised prices and the delayed release of government funds to bridge the gap between cost and retail prices that would weigh heavily on the rupee,” John said.

Soomro said that the prime minister’s decision to freeze prices is politically charged.

“The oil prices are likely to remain high and if oil prices touch $150 to $200, there will be chaos and a massive hit to oil marketing companies. Eventually, the government would have to borrow at higher rates due to fiscal indiscipline. This too would have implications on the interest rate and rupee negatively,” he cautioned.

Western powers are increasingly mulling the option of an outright oil embargo on Russian energy products. Oil importing countries like Pakistan are expected to suffer a blow since they would have to import oil at higher prices denting their reserves.

“Other agro-commodities like wheat and corn are also heading higher that would weigh heavily on the rupee. High current account deficit due to skyrocketing global commodity prices, fast-declining foreign exchange reserves, and evolving political crisis in the country could be bearish for the currency,” John said.


Khurram Schehzad, chief executive officer of Alpha Beta Core, said that petroleum products are the biggest import. In 2020-21, petroleum products contributed $11.36 billion, or 20.14 per cent, to the country’s total import bill.

“The spike in global fuel prices towards an all-time high will swell Pakistan’s import bill. It will also widen the current account gap and trade deficit, dragging the rupee to an all-time low around Rs185 against a dollar,” Schehzad said.

Soomro said if oil prices remain high at triple digits, by June the rupee could plunge towards Rs185-Rs190 against the dollar.

“Let’s hope oil and commodities crash. And crash soon.”


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