US Dollar exchange rate with the Pakistani rupee is 211.4 rupees against one dollar on 21st June 2022. It is the lowest level of Pakistani currency in history. The import bill of Pakistan will be more than US$ 70 billion by 2022. Pakistan needs $ 37 billion for debt payments and other obligations. Delay in dealing with IMF has already affected the bond & funding market.
Factors of Surge in American Dollar Value:
- An increase in dollar demand is responsible for the bullish trend in the dollar market.
- The inflow of foreign currency is not sufficient. Exports and Foreign Direct Investments are low.
- Foreign currency outflows more. Imports are high, especially petroleum products, and the price hike globally is raising the burden of payments.
- The rapid increase in foreign debt services is due to more loans.
- The deficit in trade & current account is even more alarming because foreign exchange reserves are in the single digit.
- Foreign remittances have declined 25% over a month, from $ 3.125 billion in April 2022 to $ 2.3 billion in May 2022, due to withdrawing the right to vote from overseas
- Pakistanis.
- Delay in IMF’s Extended Fund Facility of $ 6 billion.
Effects:
- A hike in dollar demand and appreciation of the dollar is increasing inflation and decreasing economic growth.
- The purchasing power of consumers is decreasing. As prices of wheat, cooking oil, and other goods have steep rise.
- The cost of imported goods is increasing. Decreasing imports from every sector, from consumer to industrial products.
- The surge in the cost of imported raw materials for the steel industry has increased the rebar prices in Pakistan.
- Investors are reluctant to invest due to the higher cost of imports in terms of higher payments due to the rupee depreciation.
- People are hoarding the US dollar instead of investing to profit from dollar appreciation.
- The Importer will inform last one day to buy 1 lack USD; it was a limit of 5 lack USD. The Importer will take permission in advance to open the letter of credit. This condition is mainly for luxuries to save the dollar.
Remedies:
- Provision of funds from the IMF to Pakistan. The government has to find other measures to raise the inflow of foreign exchange and to appreciate the rupee’s value.
- Pakistan needs to trade with China and other countries in national currency than the dollar, as Russia is using the Ruble in bilateral trade.
- Pakistan needs to lift the taxes from exports to increase exports and the foreign exchange/currency inflow.
- Natural Gas reservoirs discovered in Pakistan need to use to fill the gap between gas demand and supply.
- European countries, China, and India are importing cheaper petroleum products from Russia. Pakistan also needs to step forward and avail of low petroleum products.
- China has agreed to provide a fund of $2.3 billion. With this provision, foreign exchange reserves will be better.
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