The market has recently seen a decline in the value of PKR in relation to USD. This has been happening non-stop for the past few weeks. Around $7.5 billion is still the approximate amount of State Bank of Pakistan’s (SBP’s) foreign exchange reserves. Over the past eleven weeks, forex reserves have decreased by less than $300 million despite significant payments totaling more than $2 billion and adjustments exceeding $1 billion in derivatives.
Not only is the downturn a result of the slowdown in exports, the burden on payments has also increased due to higher oil prices. That the remittances are steady and are increasing over time is a positive sign. However, the rate of economic expansion is insufficient to offer relief.
Bank lending to the private sector is not what it should be. Even yet agricultural loans have continued to grow at a steady pace. However, the market must take into account the geographic situation and how it affects local economies.
Asian economies, particularly China’s, are under constant pressure. It is believed that China has entered a state of disinflation, which has resulted in Yuan’s weakness and nearly a 5% loss. Since interest rates are lower, the PBOC (People’s Bank of China) is continuously injecting money to promote growth.
For a decade, Japan’s economy has also been struggling, and its currency has severely declined by (18%) from 128.5 in January to 151 USD (current).
The Indian Rupee is under increasing pressure as well. India’s foreign exchange reserves have decreased from $601 billion to $586 billion. If the current trend continues, it might not act aggressively to safeguard the rupee due to increasing oil prices and more difficult trading circumstances worldwide. In order to stabilise its currency, the RBI (Reserve Bank of India) continuously intervenes in the market. Since July, it is said to have intervened by selling about $25 billion.
Taka of Bangladesh is also suffering for quite some time. Taka depreciated 13.3 percent against USD in 2022. It has dropped from takas 96 to almost 111 per USD from September 2022. As of 9 November 2023 (yesterday), for example, one USD was equal to 110.36 takas.
The central bank of Bangladesh, known as Bangladesh Bank, has consistently injected nearly $1 billion a month on average to support country’s currency. Its remittances decreased by more than 4% a year even with a special remittance rate, which offers the sender 2.5% over the interbank rate.
That the currencies of emerging markets are facing intense pressure is a fact. A few examples are Turkish lira, South Korean won, Thai baht, and Russian rouble. Malaysian ringgit too lost 1.5% of its value in a year. The only currency that gained in spite of world’s fragile situation was the Brazilian real.
The crisis in liquidity caused by a lack of dollar supply is another factor hurting emerging market economies and its currencies.
While Pak Rupee that opened at 275.44 in the new fiscal year (July 4) is currently trading at 287 per USD or lost nearly 4% of its value in the current fiscal year. The critics of Pakistani rupee should refrain from assailing the currency without supporting data or facts. They should avoid misleading people through incomplete information; they must try to look at the bigger picture.
Yes, the economy is struggling greatly and is dependent on borrowing from outside. However, this issue is not new since we haven’t given it the attention it always deserves. It needs to be addressed without any further loss of time.
Copyright Business Recorder, 2023