KARACHI: Pakistan’s national currency slid against the US dollar on Friday as the country’s foreign currency reserves continued to deplete during the outgoing week due to year-end payment settlements, said dealers and analysts.
The Pak rupee lost its value by 1.5 percent in the last seven days. It depreciated to Rs 176 against the American currency on Friday before closing at Rs 166.70.
“The rupee is under pressure due to a surge in the demand for US dollars. This is understandable since we have almost reached the end of the financial year when most payments are squared by companies ahead of their closings,” Samiullah Tariq, head of research at the Pakistan-Kuwait Investment, told Arab News.
“The declining exports and remittances are key reasons for the unstable supply of the US dollar,” he added.
Pakistan’s exports declined by 33 percent to $1.4 billion in May 2020 as compared to the same period last year, though they increased by 46 percent when compared to the situation in April 2020.
The county also suffered a loss of 18.6 percent due to a decline in its remittances. The reduction in the money inflow from abroad was caused by job losses of overseas workers and closure of international borders due to the coronavirus pandemic.
Analysts said that currencies of other countries had also come under pressure since a decline in exports and flight of capital from regional markets had resulted in an environment of overall economic instability.
“The flight of capital was witnessed in the regional market as investors looked for safe heavens like the United States and Europe,” Tariq noted.
Due to the outbreak of COVID-19, the rupee depreciated by 3.9 percent in just one month during July-March FY2020, official statistics indicate.
Dealers maintained the pressure on the country’s national currency was likely to ease after the end of the current fiscal year on June 30, 2020.
“Due to the COVID-19 pandemic, Pakistan’s petroleum imports were halted. Now the companies are opening LCs [Letters of Credit] which is also exerting pressure on our currency. As soon this process comes to an end, the demand for dollar will normalize,” Malik Bostan, chairman of the Exchange Companies Association of Pakistan, told Arab News.
He added that the national currency would further stabilize if the government’s negotiations with friendly countries for the conversion of short-term deposits into long-term loans materialized.
Earlier this month, Dr. Abdul Hafeez Shaikh, the prime minister’s adviser on finance and revenue, told Arab News in an exclusive interview that Pakistan was in talks with Saudi Arabia, the United Arab Emirates and China to convert the $7.7 billion short-term deposits into longer tenors.
Last year, when Pakistan was going through its worst balance of payments crisis, Islamabad approached these friendly countries for financial assistance. As a result, the country received $7.7 billion in short-term deposits through bilateral arrangements which provided it the much needed economic support.