PKR slide: Afghanistan situation key factor

Islamabad: The cessation of $5 to $7 million daily inflow from Afghanistan to Pakistan subsequent to the Taliban takeover, the $1.5 to $2 million outflow from Pakistan to Afghanistan as Afghanis remit money to their families back home with the Afghan banking channels suspended, Pakistan's widening trade deficit and non-intervention of State Bank of Pakistan (SBP) in the market are major factors contributing to the ongoing slide of the rupee against the dollar.

This was the consensus amongst economists and representatives of the business community for the rupee depreciation by more than 10 percent in the last four months while talking to Business Recorder. Afghanistan was heavily reliant on foreign assistance to meet its budgetary requirements which ceased subsequent to the Taliban take-over which ended the inflow from between $5 to $7 million daily to Pakistan.

Malik Bostan, Chairman Forex Association of Pakistan told Business Recorder that before the Taliban takeover, Pakistan received $5 million to $7 million from Afghanistan daily, as salaries were paid mostly in dollars. Instead about $2 million has been flowing out of the country to Afghanistan on a daily basis, he added, as Afghanis based in Pakistan have been buying $1.5 to 2 million on a daily basis from the open market and sending it to their country following the shortage of dollars in Afghanistan.

Stakeholders concerned over recent rupee devaluation

Bostan further noted that Afghanistan's entire banking system has shut down. Samiullah Tariq, a Karachi-based Director Research at the Pakistan-Kuwait Investment told Business Recorder that PKR has been depreciating against USD due to a combination of higher current account deficit and pressure due to situation in Afghanistan.

He said that Pakistan incurred a current account deficit of $773 million during August and $1.6 billion in the preceding month, adding that for the month of August, the trade deficit numbers have reached a record high.

'Demand-side pressure' drives Pakistani rupee to 12-month low

He further said that Afghanistan had been relying on foreign aid and after the suspension of foreign inflows the pressure on PKR has increased. Moreover, the central bank is not intervening in the market and the currency is flexible, he said, adding that the central bank is not using its record high reserves to defend the currency.

Zia-ul-Haq Sarhadi, Convener Standing Committee the Federation of Pakistan Chamber of Commerce and Industry (FPCCI) on Afghan Transit Trade, said that the banking channels in Afghanistan were suspended during the Taliban takeover and these have not yet been restored fully. Abid Qayyum Sulehri, Executive Director Sustainable Development Policy Institute (SDPI) said that the western countries have suspended their relations with Afghanistan, besides freezing its foreign reserves.

PKR shows a downward trend

He added that the Afghan families and business community based in Pakistan have begun to convert rupees to dollars, which has resulted in increasing pressure on the local currency. He further said that Pakistan's imports have witnessed a substantial increase and trade deficit has widened and as currently SBP is not intervening in the market the supply demand gap of dollar has increased and resultantly rupee is depreciating.

Copyright Business Recorder, 2021