KARACHI: Pakistani Rupee (PKR) Monday continued its falling journey against the US dollar in the interbank foreign exchange market.
The exchange rate recorded a decline of 27 paisas in rupee value to end at PKR 227.41 against the dollar from last Friday’s closing of PKR 227.14 in the interbank foreign exchange market.
Currency experts said that falling foreign exchange reserves and higher import payment demands kept the rupee under pressure on the first day of the week.
READ MORE: Pakistani rupee slips by two paisas against dollar in interbank
State Bank of Pakistan (SBP) recently lifted the prior condition for opening the Letter of Credit (LC) by the banks for import proceeds.
The government imposed restrictions on opening of the LCs in May 2022 to control balance of payment and prevent outflow of the foreign currency.
Imports recorded 32 per cent decline to $5.16 billion in the month of December 2022 when compared with $7.58 billion in the same month of the last year, according to data released by Pakistan Bureau of Statistics (PBS).
Besides, sharp depletion in foreign exchange reserves and disruption in loan program under International Monetary Fund (IMF) also caused rupee devaluation.
READ MORE: Dollar jump to PKR 227.12 in interbank amid rising foreign payment
Pakistan’s total foreign exchange reserves continued to deplete and recorded another fall of $284 million to reach at $11.42 billion by week ended December 30, 2022. The foreign exchange reserves of the country were $11.707 billion a week ago or December 23, 2022.
The country’s foreign exchange reserves hit all-time high of $27.228 billion on August 27, 2021. Since then the foreign exchange reserves have declined by $15.806 billion.
On the other hand, Pakistan’s official foreign exchange reserves have fallen to an alarming level of $5.57 billion by week ended December 30, 2023. The official foreign exchange reserves of the State Bank of Pakistan (SBP) fell by $245 million to $5.577 billion by week ended December 30, 2022 as compared with $5.822 billion a week ago i.e. December 23, 2022.
The present level of the official reserves have created default situation as the country may unable to pay for foreign trade in coming days.
READ MORE: Pakistani currency ends firmer to dollar amid falling import
The import bill of the country for the month of December 2022 was recorded at $5.16 billion, according to Pakistan Bureau of Statistics (PBS).
This shows the official foreign exchange reserves of the country have capacity to provide import cover for only 1.2 months. The benchmark foreign exchange reserves of a central bank should be at a level to provide three months import cover.
The foreign exchange reserves held by the central bank witnessed a record high at $20.146 billion by week ended August 27, 2021. Since then the official reserves of the SBP dropped by $14.569 billion.
The foreign exchange reserves held by commercial banks also recorded a decline of $39 million to reach $5.846 billion by week ended December 30, 2022 as compared with $5.885 billion a week ago.
The critical low level of the foreign exchange reserves may further put pressure on the exchange rate, said analysts at KASB Research.
READ MORE: PKR falls sharply against dollar to welcome New Year
Plummeting foreign exchange reserves amidst high debt servicing obligations will likely exert considerable pressure on the Pak Rupee (PKR).
As per the SBP, REER has again crossed the 100 mark, driven by Pakistan’s high inflation environment.
As debt servicing exerts additional pressure on the PKR, the analysts believed the currency may depreciate to PKR 265 to the US dollar by end of the current fiscal year.
