KARACHI: The Pakistan rupee witnessed a sharp decline on Tuesday, falling by 91 paisas against the US dollar. The rupee closed at Rs167.90 per dollar in the interbank foreign exchange market, down from the previous day’s rate of Rs166.99. The depreciation was primarily driven by increased demand for dollars, largely due to rising import payments.
Currency dealers attributed the surge in demand to import payments associated with the month of Ramazan. Traditionally, the holy month sees an uptick in the purchase of essential commodities and goods, pushing the demand for foreign currency higher. This seasonal rise in import activity added pressure on the rupee, contributing to its depreciation.
Furthermore, expenses related to Hajj preparations have also contributed to the increased demand for the US dollar. As pilgrims prepare for the annual pilgrimage, there is typically a spike in demand for foreign exchange, which further impacts the value of the rupee in the short term.
Despite these challenges, currency experts and dealers suggest that the rupee may stabilize in the coming months. A significant factor that could aid the rupee’s recovery is the anticipated reduction in import payments due to falling international oil prices. Lower oil prices are expected to reduce Pakistan’s overall import bill, easing the demand for foreign exchange and supporting the rupee’s value.
Additionally, the ongoing COVID-19 pandemic has disrupted trade patterns, with both imports and exports being affected. In March 2020, Pakistan’s import bill dropped by 21% to $3.3 billion, down from $4.185 billion in February, according to data from the Pakistan Bureau of Statistics (PBS). This decline is largely attributed to the nationwide lockdown implemented to contain the spread of the virus, which restricted economic activity and reduced the demand for imported goods.
However, the pandemic has also negatively impacted Pakistan’s export sector. Exports fell by 15.56% in March, reaching $1.8 billion compared to $2.14 billion in February 2020. Despite this recent decline, the country’s exports showed a modest increase of 2.23% during the first nine months of the current fiscal year, totaling $17.45 billion compared to $17 billion in the same period last year.
The trade deficit during the first nine months of the fiscal year narrowed by 26.45%, amounting to $17.36 billion compared to $23.61 billion in the same period last year. This contraction in the trade deficit reflects the combined effect of lower imports and a slight improvement in exports, offering some relief to the economy amidst the ongoing challenges.