The rupee stability against the dollar during the year 2022 may depend on the international oil prices and domestic demand for imported goods.
The international oil prices are rising again, as the new coronavirus variant has been identified as not much fatal. Further, the decline in the foreign exchange reserves of the State Bank of Pakistan (SBP) may also result in deterioration in the rupee value.
However, certain restrictions on imports have been proposed through the Finance (Supplementary) Bill, 2021, which may help curtail the import bill during the coming months.
The local currency ended the year 2021 with a sharp recovery to end at Rs176.51 against the greenback in the interbank foreign exchange market.
The rupee witnessed a massive decline during the year 2021, as it fell 10.44 per cent, compared with the closing of Rs159.83 to the dollar on December 31, 2020, and recorded a decline of 12.04 per cent, compared with Rs157.54 on June 30, 2021.
The local currency; however, recorded during the last two days, owing to the intervention of the central bank and import restrictions introduced by the government through the mini-budget presented on December 30, 2021 in the Parliament.
The official foreign exchange reserves of the central bank slipped $299 million to $17.85 billion by the week ended December 24, 2021, compared with $18.15 billion a week ago. The official reserves of the SBP has an import cover of 2.25 months, which is below the benchmark of three months.
The latest foreign exchange reserves of the central bank also included $3 billion deposits of the Saudi Fund for Development.
Development. Previously, the central bank had taken several measures to support the local currency, as the central bank on December 19, 2021 issued revised instructions on foreign exchange buying.
As per the new instructions, an individual can purchase up to $10,000 in a day and $100,000 in a year subject to certain documentation. Besides these developments, the large import bill and widening of the current account deficit remained major challenges for the rupee stability during the year.
Pakistan’s current account deficit widened to $7.1 billion during the five months (July-November) 2021/22, compared with a current account surplus of $1.87 billion in the corresponding period of the last fiscal year.
The unprecedented rise in the import bill is the major culprit behind widening of the current account deficit.
The import bill increased 69.17 per cent to $32.93 billion during the first five months (July-November) 2021/22, compared with $19.47 billion in the same period of the last fiscal year.
The rising import bill widened the trade deficit massively. The trade deficit ballooned 112 per cent to $20.59 billion during the first five months of the current fiscal year, compared with the deficit of $9.72 billion.
