- Currency's decline ongoing since May this year as high import payments take toll
The Pakistani rupee dropped to its lowest value against the US dollar in almost ten months after a 0.76% fall in inter-bank trading on Monday.
At close, the Pakistani currency finished at Rs163.67 as per the State Bank of Pakistan (SBP). The greenback last touched the 163 mark against the PKR back in October 2020.
The currency's decline has been ongoing since May this year as a widening current account deficit takes toll on the country's economy. While Pakistan reported its highest export figures for July, many believe the import bill would be even higher.
"The pressure created due to import payments has led to an increase in demand for USD, and this demand/supply gap is weakening the rupee," Head of Research at Pakistan Kuwait Investment Company Samiullah Tariq told Business Recorder.
The country witnessed a single month’s record highest import figure of $6.3 billion in June this year while the current account deficit remained $1.3 billion in this period.
"The current account deficit widened to $1.6 billion in June compared to $650 million in May," said the SBP.
Tariq said that as the situation improves and economic activity returns to normal, imports will surge which can only be countered with an increase in exports. “Export growth should be more than imports on a yearly basis. Other than this, we have no other option to address this issue,” he said.
As the trend continues, analysts expect USD to hit the Rs165 mark in the coming days.
Similar sentiments were expressed by Malik Bostan, President Forex Association of Pakistan, who said that Pakistan’s trade deficit has widened from $23.159 billion in FY 2019-20 to $31.057 billion during FY 2020-21.
“Over $8 billion worth of food items were imported in FY21, which is a serious concern for an agricultural country like Pakistan,” he said.
Bostan said that the government's decision to end the amnesty scheme for the construction industry has put pressure on the rupee as well.
The amnesty scheme has been discontinued from the current fiscal year amid pressure from the International Monetary Fund (IMF).
He added that the increased procurement of Covid-19 vaccination has also added to the demand for the dollar, as both the government and private sector look to import the vaccine. Pakistan is currently battling the start of the fourth wave, which carries the fast-spreading Delta variant.
Overall, Pakistan has vaccinated over 30 million people against the virus to date. The government plans to inoculate 40 percent of the population in big cities by the end of August.