Karachi, June 9, 2023: The Pakistani Rupee (PKR) experienced a 12 paisas depreciation against the dollar on Friday, primarily due to the sharp reduction in the country’s foreign exchange reserves.
In the interbank foreign exchange market, the exchange rate ended at PKR 286.93 to the dollar, down from the previous day’s closing of PKR 286.81.
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Currency experts attribute the pressure on the local currency to the dwindling foreign exchange reserves and the increasing demand for import payments. Data released by the State Bank of Pakistan (SBP) indicated that the official foreign exchange reserves have fallen below the one-month import cover level. By the week ending June 2, 2023, the reserves declined by $179 million to $3.912 billion, compared to $4.091 billion the previous week (May 26, 2023).
The Pakistan Bureau of Statistics (PBS) reported that the country’s import bill for May 2023 amounted to $4.275 billion. According to international standards, a central bank is expected to maintain foreign exchange reserves equivalent to at least three months’ worth of import cover. However, the import bill for May witnessed a significant increase of 43 percent compared to $3 billion in April 2023. This surge can be mainly attributed to the government’s decision to lift restrictions on opening Letters of Credit (LCs) for import payments.
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The continuous decline in foreign exchange reserves is primarily driven by the ongoing external debt repayment obligations, highlighting the challenges Pakistan faces in maintaining a favorable balance of payments. It is worth noting that Pakistan’s foreign exchange reserves reached an all-time high of $27.228 billion by the week ending August 27, 2023. However, since then, the country has experienced a significant decline, with reserves decreasing by $17.893 billion.
The Pakistani Rupee has been under substantial pressure in recent weeks due to limited inflows and a challenging political climate. On May 11, 2023, the rupee hit a record low of PKR 298.93 against the US dollar, raising concerns among investors and eroding confidence in the local currency.
Exchange rates are influenced by various factors, including supply and demand dynamics, market sentiment, and economic indicators. The recent devaluation of the Pakistani Rupee against the US dollar reflects the prevailing economic conditions and underscores the urgent need for measures to stabilize the currency.
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As the country’s central bank, the State Bank of Pakistan plays a crucial role in managing the exchange rate and implementing policies to foster stability. To restore confidence in the Pakistani Rupee, the government must address economic challenges, attract foreign investment, and improve the overall economic outlook through prudent economic policies and structural reforms.
Market participants, policymakers, and financial experts will closely monitor exchange rate movements to assess their potential impact on various sectors of the economy. By analyzing these fluctuations and developing strategies, efforts will be made to mitigate factors that contribute to volatility in the foreign exchange market.
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While short-term fluctuations are common, sustaining stability and achieving long-term growth require addressing underlying economic issues. The commitment of the Pakistani government to implementing prudent economic policies and structural reforms will play a vital role in restoring confidence and strengthening the Pakistani Rupee in the long run.
