Growing pressure on foreign exchange reserves, weak macroeconomic indicators coupled with relatively high inflation rate in Pakistan as compared to its trading partners are major factors for the depreciation of the rupee against the US dollar.
Former finance minister Sartaj Aziz said that average inflation in Pakistan was relatively high compared to our trading partners and depreciation in the rupee was inflation adjustment as well as due to pressure on foreign exchange reserves following a decline in exports. Sartaj said depreciation in rupee did not benefit exports, which have decreased instead primarily for domestic reasons namely load shedding and decline in cotton prices in the global market. Any conflict in Middle East would create serious problems for Pakistan on trade account with the escalation in oil prices, he added.
An official in the ministry of finance on condition of anonymity said that balance of payment would remain a source of problem for the country despite positive growth in remittances. He said that despite expected $12 billion remittances, anticipated trade deficit of around $19 billion on account of expected $42 billion imports and $23 billion exports would remain not only a challenge for the economic managers but would also negatively impact the foreign exchange reserves.
The impact of rising oil prices in the global market as well as need to import furnace oil for power generation has been contributing to worsening balance of payment problem. Analysis of the data for the first six months of the current year showed that not only the price of per barrel petroleum products escalated to $100 but also more oil products were imported compared to the same period of last year. The oil price of the barrel was around $75 during July-December 2010-11 but increased to $100 for the same period in the current fiscal year.
Pakistan imported 6.9 million metric tons of petroleum products worth $5.139 billion during July-December 2011-12, showing a 14.44 per cent increase in quantity and 54.87 per cent increase in the cost as compared to the petroleum products imported during the same period of last year. During July-December 2010-11, the country imported 5.998 million metric tons of petroleum products worth $3.378 billion.
Analysis of the trade figures of crude oil showed that cost of per barrel crude oil increased to $107 during the first six months of the current fiscal year from around $73 for the same period of last year. Pakistan imported 3.060 million metric tons crude oil worth $2.463 billion during July-December 2011-12 as compared to 3.747 million metric tons crude oil of $2.062 billion, reflecting a decline of 18.34 per cent in quantity import and 21.66 per cent increase in the cost.
When contacted, Dr Shahid Hasan Siddiqui, chairman & chief executive, Research Institute of Islamic Banking & Finance, Karachi, said that pressure on current account is expected to aggravate in coming days due to non-materialisation of external inflows forecast in the budget. All this would translate into pressure on foreign exchange reserves and ultimately on exchange rate. The outcome of depreciation of the rupee against the dollar would negatively impact the debt servicing and consequently widen the fiscal deficit, he said.
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