On Monday, the Pakistani Rupee (PKR) suffered a significant drop of PKR 287.09, nearing its historic low against the dollar, due to uncertain economic and political conditions.
This resulted in a decline of PKR 2.44 compared to Friday’s closing of PKR 284.65 in the interbank foreign exchange market.
On April 5, 2023, the rupee hit a record low of PKR 287.85 against the dollar.
The recent depreciation of the rupee may be attributed to the cancellation of the finance minister’s visit to the US to attend summer meetings of the International Monetary Fund (IMF) and the World Bank, despite Saudi Arabia’s assurance of providing assistance to Pakistan.
Furthermore, the political uncertainty surrounding the provincial elections has disappointed the currency market. The rupee has been under immense pressure during the week due to the uncertainty surrounding the IMF deal for inflows of $1.2 billion under Extended Fund Facility (EFF).
On March 31, 2023, the State Bank of Pakistan (SBP) announced a decrease of $55 million in the country’s foreign exchange reserves, falling to $9.76 billion. This figure represents a decline from $9.815 billion the week before.
The country’s foreign exchange reserves have decreased by $17.468 billion since reaching an unprecedented high of $27.228 billion on August 27, 2021. The official reserves of the State Bank of Pakistan also fell by $36 million to $4.208 billion in the week ending on March 31, 2023, compared to $4.244 billion in the previous week.
Although the foreign exchange reserves of the State Bank of Pakistan still exceed the level required to provide more than one month’s worth of import cover, they have fallen below the ideal level of foreign exchange reserves equivalent to three months’ worth of import payments. The recorded import bill for March 2023 was $3.828 billion.
The decline in the value of the PKR can be attributed to economic challenges, political uncertainties, and depleting foreign exchange reserves.
Although the PKR had strengthened against the dollar due to a significant contraction in the current account deficit, a lack of inflows has put pressure on the currency.
Pakistan has witnessed an 11% decline in remittances during the first nine months (July-March) of fiscal year 2022/2023 to $20.53 billion. The inward remittances into the country were $23.02 billion during the same period of the last fiscal year.
Pakistan has been facing a foreign exchange crisis due to a decrease in foreign exchange reserves, a widening current account deficit, and delays in obtaining loans from international organizations such as the IMF.
Despite seeking loans and financial assistance from international organizations such as the IMF, delays in obtaining these loans have prolonged the crisis, and the country continues to face challenges in managing its foreign exchange reserves and stabilizing the value of its currency.