Karachi, December 29, 2023 – The Pakistani Rupee (PKR) concluded the year 2023 on a positive note, registering a gain of PKR 0.07 against the US dollar, bolstered by an increase in foreign exchange reserves.
The interbank foreign exchange market saw the rupee closing at PKR 281.86 compared to the previous day’s closing of PKR 281.93.
Despite the usual year-end surge in demand for the US dollar due to import and corporate payments, the Pakistani Rupee managed to make gains, surprising market analysts. Traditionally, the demand for the greenback tends to be higher towards the end of the year, but the recent upswing in foreign exchange reserves played a pivotal role in stabilizing the rupee.
Market analysts explained that the surge in foreign exchange reserves contributed significantly to the rupee’s stability. The State Bank of Pakistan (SBP) reported a substantial increase of $852 million in its official foreign exchange reserves for the week ending December 22, 2023. This surge propelled the central bank’s reserves from $6.905 billion to $7.757 billion, marking a positive turn in Pakistan’s economic landscape.
The SBP attributed this significant increase to substantial foreign inflows received by the government of Pakistan. Economists are optimistic about the implications of this boost, stating that it will play a crucial role in managing the country’s balance of payments and enhancing its external debt repayment capacity.
The overall foreign exchange reserves for Pakistan, including both central bank and commercial banks holdings, experienced a combined boost of $788 million. By the week ending December 22, 2023, the total reserves reached $12.856 billion, compared to the previous week’s level of $12.068 billion. This surge is viewed as a positive development that could help allay concerns about the country’s economic stability.
One of the key contributors to the Rupee’s stability is the noteworthy reduction in the Current Account Deficit (CAD). From July to November of the fiscal year 2023-24, Pakistan witnessed a substantial 64.46 percent reduction in its CAD, totaling $1.16 billion. This contrasts sharply with the $3.26 billion recorded during the same period in the previous fiscal year. Analysts attribute this decline to a significant reduction in the trade deficit, signaling positive trends in the country’s economic performance.
While challenges persist, such as increased demand for the US dollar, the Rupee’s ability to gain ground against the dollar underscores the intricate interplay of economic factors. The positive trajectory in foreign exchange reserves and the reduction in the CAD position Pakistan favorably as it moves into the new year, instilling confidence in the economic outlook and stability of the national currency. Investors and analysts will continue to monitor these trends closely as they shape the economic landscape in the coming months.
