KARACHI: The Pakistan rupee on Wednesday continued to trade at historic lows against the United State Dollar (USD) as 2021 draws to a close amid higher imports, analysts and traders said, projecting a less pessimistic outlook for the new year.
The rupee started the year at Rs160.39 in January this year compared to the greenback and closed at Rs178.24 on Wednesday in the interbank market, another historic low, recording a devaluation of over 11 percent or Rs17.85 since January 2021, Arab News has reported.
The currency appreciated to Rs152.39 against the greenback in May this year but in the latter half of the year higher imports, a Taliban takeover in Afghanistan and negotiations with the International Monetary Fund contributed to the rupee’s downslide, which lost value by around 17 percent or Rs25.85.
According to media reports, Pakistani rupee is one of the world’s worst-performing currencies, declining by almost 12 per cent since the start of the year and more than 17 per cent after having bottomed out to 152.50 to a dollar in mid-May.
According to a media report by the end of 2021 the Pakistan government had to once again turn to the International Monetary Fund (IMF) to put the economy into stabilisation mode. The State Bank of Pakistan has taken numerous measures to stabilise the rupee and the Federal Investigation Agency (FIA) is continuously cracking down on hoarders and smugglers to restrict the outflow of the American currency and ease its demand, the flight of the dollar continues.
The Pakistani rupee has depreciated 30.5 per cent against the US dollar in the last three years and four months under the current government of Pakistan Prime Minister Imran Khan.
According to The News International, the value of Pakistani rupee has fallen from Rs 123 against the USD in August 2018 to Rs 177 against the USD in December 2021, a decline of 30.5 per cent over the last 40 months. This makes it one of the highest devaluations of the currency in the country’s history.
Notably, the only other higher devaluation occurred following the falling of Dhaka and Pakistan’s currency was devalued by 58 per cent from Rs 4.60 to Rs 11.10 against the USD in 1971-72.
Experts opine that the massive devaluation of currency under the Imran Khan government fueled inflationary pressures. They believe that the depreciation of the exchange rate by 30.5 per cent led to higher inflation, the report said.
“Increasing CAD (current account deficit) due to higher imports coupled with rising international commodity prices and freight charges, uncertainty related to the IMF [loan] program and speculation led to the rupee’s depreciation,” Sana Tawfik, a banking sector analyst at Arif Habib Limited, told Arab News.
Pakistan’s current account deficit widened to a 40-month high at $1.91 billion in November 2021. The July-Nov current account balance turned into a $7 billion deficit as compared to a $1.8 billion surplus recorded last year, according to data released by the central bank.
Five month imports of the country stood at $29.9 billion as compared to exports of $12.3 billion, posting a trade deficit of $17.6 billion.
The higher demand for the greenback for import payments amid increasing global commodity prices, including of petroleum products and food items, kept the Pakistani rupee under pressure while the change of regime in Afghanistan compounded the situation as the flight of the dollar started from Pakistan to Afghanistan.
The Taliban took control of Kabul on August 15, 2021, after US forces withdrew from Afghanistan, leaving behind battered financial institutions. The situation took a turn for the worst after all official accounts of the Afghan government abroad were frozen.
“Afghanistan still depends on Pakistan for its import payments. Every month $300-$400 million worth of Afghanistan’s import are met through Pakistan due to bilateral trade in Pak rupee,” Malik Bostan, chairman of the Exchange Companies Association of Pakistan (ECAP), told Arab News. “Pakistan will be better off if the accounts of Afghanistan are unfrozen because there will be no pressure on Pak rupee.”
But Pakistani currency analysts expect rupee depreciation to slow down following international inflows during the first half of the next year.
“Over the next few quarters our foreign exchange outlook is less pessimistic,” Tawfik, said. “Am expecting the Pak rupee to remain within the range of 178-180 per USD till June 2022 with inflows expected from International Sukuk and IMF tranche followed by flows from ADB and World Bank.”
The south Asian country is expected to see a $6 billion IMF loan program revived at the next meeting of the fund’s executive board on January 12, 2022, which will also ease pressure on the Pakistan rupee.