The rupee witnessed yet another significant drop against the US dollar, depreciating 0.8% in the inter-bank market on Wednesday.
As per the State Bank of Pakistan (SBP), the rupee closed at 185.92 after a day-on-day depreciation of Rs1.48, or 0.8%. During the last three trading sessions, the rupee has lost 2.37% of its value.
The local currency has devalued by over 17% since achieving its last high recorded on May 14, 2021, and by over 14% during the fiscal year.
Oil price, a major determinant of currency parity, rebounded on Wednesday as concerns about tighter supplies from Russia and Libya dominated, while industry data showed a drop in US crude inventories last week.
The rupee has remained under pressure for months now, as the country struggles to improve its current account position amid a rise in its import bill, which has led to the depletion of foreign exchange reserves, raising concerns on the external front.
The central bank’s foreign exchange reserves have fallen below $11 billion, which is the lowest level since June 2020. Total liquid foreign reserves held by the country stood at $17.03 billion as of April 8, as per the latest data.
Newly appointed finance minister Miftah Ismail has said current reserves position provides an import cover of only around 50 days.
Meanwhile, Foreign Direct Investment (FDI) also witnessed negative growth and declined by 2% during the first nine months of this fiscal year (FY22).
As per latest figures, Pakistan recieved FDI amounting to $1.285 billion during July-March of FY22 as against $1.311 billion in the same month of the previous fiscal year (FY21), showing a decline of $26 million.
On the other hand, the International Monetary Fund (IMF) has projected Pakistan’s GDP growth rate at 4% for 2022 commpared to 5.6% in 2021, and rise in inflation from 8.9% in 2021 to 11.2% in 2022.
Asad Rizvi, former treasury head at Chase Manhattan, is of the view that the latest decline in local currency is due to “economic reasons” as FX reserves plunge.
“Delay in Chinese $2.4 billion funding after its maturity and widening of trade gap is hurting too,” he said.
The expert added that uncertainty pertaining to talks with the IMF is adding pressure on the Pak rupee while “holding of export proceeds is adding to the woes.”