Pakistan's rupee continued to tumble against the US dollar, depreciating yet another 0.2% in the inter-bank market on Friday to hit its weakest level.
As per the State Bank of Pakistan (SBP), the PKR closed at 176.77 against the USD after a day-on-day depreciation of 35 paisas or 0.20%. On Thursday, PKR closed at the then-record low of 176.42 against the USD.
The fall comes as pressure mounts on the currency amid a widening trade deficit and falling foreign exchange reserves. Concerns over Pakistan's external account have also put pressure on the country's stock market that plummeted 4.7% on Thursday.
“Pressure on the external front is biting the currency, as the import numbers are really high,” Shahab Farooq, Director of Research at Next Capital, told Business Recorder, referring to the import bill that clocked in at a record-high level of nearly $8 billion in November.
Against USD: Pakistan's rupee drops to historic low as trade deficit widens
Farooq added that funds from international lenders have continued to be delayed, whereas foreign exchange reserves are declining, adding pressure on the rupee. The currency has been under severe pressure since May this year, but recent developments over delay in release of various support packages have added to uncertainty.
The country’s trade deficit widened by 133.99% on a year-on-year basis and stood at $4.963 billion in November 2021 compared to $2.121 billion in November 2020. Imports witnessed 82.83% growth on a year-on-year basis in November 2021 and stood at $7.847 billion compared to $4.292 billion in November 2020.
“In the near-term, the rupee will remain under pressure,” added Farooq, who was of the view that the currency will remain in the 175-178 bandwidth for the short-term.
The pressure will subside as Pakistan receives inflows and fiscal measures begin to bear fruit, he said. “Dip in oil prices would also be reflected in the coming month,” Farooq said.
Oil imports constitute a major portion of the country’s import bill.
Jul-Nov trade deficit widens 111.74pc YoY: PBS
The rise in import bill has also led to a decline in FX reserves of the country. “Higher import bill has widened the trade gap, resulting in the fall in reserves,” Asad Rizvi, Ex-Treasury Head at Chase Manhattan Bank, tweeted on Friday.
From January, OPEC will add 400.000 barrels per day, which “may soften oil prices,” added Rizvi.
Meanwhile, delay in funding from international lenders will continue to add pressure “that can push PKR to test new lows.”
The country’s total liquid foreign exchange reserves declined by $275 million on a weekly basis, revealed the central bank on Thursday. Total liquid foreign exchange reserves held by the country stood at $22.499 billion on November 26, 2021.
This article first appeared in Business Recorder on Dec 3, 2021