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.
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.
“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.