KARACHI: Pakistani Rupee (PKR) fell further against the US dollar on Wednesday as the State Bank of Pakistan (SBP) lifted a ban on imports.
The exchange rate ended down by 22 paisas in the rupee value to end at PKR 226.37 to the dollar from previous day’s closing of PKR 226.15 in the interbank foreign exchange market.
Currency experts said that the local currency had come under pressure further as the central bank lifted the ban on import payments.
READ MORE: Rupee free fall continues; dollar hits PKR 226.15 in interbank
The SBP a day earlier withdrew the condition of prior approval for banks in processing the import payments. It is worth mentioning that the central bank in pursuance to the federal government directions imposed restriction in May 2022 on opening of letter of credits (LCs) for import of goods falling under Chapter 84, 85 and certain items in 87 of Pakistan Customs Tariff.
The restrictions were imposed in order to prevent dollar flight and rescued the local currency from massive depreciation. Apparently, the restrictions have failed to achieve the desired results as both the rupee and foreign exchange reserves recorded massive depreciation during the period.
The local currency witnessed a decline of 10.50 per cent since the start of the current fiscal year. The exchange rate was at PKR 204.85 at the start of the current fiscal year on July 01, 2022 and fell to the present level of PKR 226.37 to the dollar.
READ MORE: Rupee depreciates to PKR 225.82 against dollar in interbank
The official foreign exchange reserves of Pakistan reduced to provide about one month import cover.
The official foreign exchange reserves of the State Bank Pakistan (SBP) fell to $6.12 billion by week ended December 16, 2022. Whereas, the import bill of the country for the month of November 2022 was recorded at $5.18 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 central bank said that its foreign exchange reserves fell by $584 million to $6.12 billion by week ended December 16, 2022 when compared with $6.70 billion a week ago i.e. December 09, 2022.
READ MORE: Rupee deteriorates on falling foreign exchange reserves
State Bank attributed the decline in official reserves to external debt repayment. The current level of reserves witnessed multi years low as the SBP reserves were seen at $7 billion in April 2014.
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 $14.026 billion.
Recently, Malik Mohammad Bostan, Chairman of Forex Association of Pakistan (FAP) disclosed that a bulk amount of dollars were transferred through Afghan Transit Trade.
READ MORE: PKR ends stable to dollar despite greenback demand for foreign payments
Bostan said that Afghan transit trade incurred huge financial losses to Pakistan. “A huge outflow of dollars from Pakistan is being done through Afghan transit trade. In this misuse not only Afghan traders but Pakistani importers are also involved,” he said.
He explained that the Pakistani government imposed restrictions on imports of luxurious and non-essential items and levied huge import duties to discourage the imports. “Our importers have connections in Dubai, London, Europe, USA, Saudi Arabia etc. where they make payments through Hawala and Hundi (illegal payments) and import goods under Afghan Transit Trade,” he said, adding that these goods meant for Afghanistan but after unloading at Afghanistan those goods return to Pakistan.
