KARACHI: Strong demand for dollars for external payments, depleted foreign exchange reserves and rising oil prices on the international market are likely to keep the Pakistani rupee under pressure, experts said.
However, they brushed off speculation that the Rupee could fall to 200 against the Dollar.
“The Federal Board of Revenue (FBR) had issued notices for the collection of 16% Federal Excise Duty (FED) on exchange company transactions. These reports have caused panic in the market,” said Malik Bostan, chairman of the Exchange Companies Association of Pakistan.
“We have spoken to Finance Minister Shaukat Tarin and briefed him on the negative impact this would have on the exchange rate.”
“Since the 16% proposed by the FED on exchange companies was withdrawn, there was no chance that the US dollar would reach Rs 200,” he added.
Bostan said oil prices on the international market were rising and the country’s demand was growing, which would inflate the import bill.
“Rising oil prices have a direct impact on the value of the rupee. The government must limit the consumption of petroleum products and the influx of combustion engine vehicles into the market.
Wajid Rizvi, an analyst at JS Global Capital, said a triple impact of low inventories, low spare capacity and low investment was making the oil rally stronger, amid resilient demand.
“Oil’s recent rally continues to ignore concerns over Omicron’s regional lockdowns, as most economic activity around the world has not been materially altered,” he said.
“This has been added by the unrest in Kazakhstan, which is impacting OPEC+’s 1.8 million bpd oil supply to the global oil market.”
Therefore, high international oil prices are a bad omen for countries like Pakistan, as petroleum products are the major import commodity.
“Our base estimate of the $20 billion oil import bill for FY22 assumes an average oil price of $75/bbl and every $5/bbl increase can increase the bill estimate. import of $1.2 billion (0.3% of GDP),” Rizvi said.
Khawaja Amjad Waheed, CEO of NBP Funds, said the consequence of the strong recovery in domestic demand, amid soaring global commodity prices, had been a sharp rise in the import bill.
“Although exports have also rebounded, there are growing concerns over the balance of payments position as Pakistan’s imports significantly exceed exports,” Waheed said.
He said that the recently adopted policy measures such as the sharp depreciation of the currency, the widening of the scope of the 100% cash margin requirement on imports, the temporary regulatory duties on non-essential imported items and the reduction of monetary stimulus measures by the State Bank of Pakistan (SBP) were expected to contain the import bill in the future.
“We expect the current account deficit to widen to $13.5 billion in FY22 due to a recovering economy and rising commodity prices in international markets,” added Waheed.
The SBP’s foreign exchange reserves improved from $13.4 billion at the end of CY20 to around $17.9 billion at the end of CY21 thanks to flows from multilateral agencies such as the Asian Development Bank ( AfDB), the World Bank and the Kingdom of Saudi Arabia. .
“We expect foreign exchange reserves to remain stable due to the expected resumption of the International Monetary Fund (IMF) program, which will make available 750 million special drawing rights (equivalent to $1,059 million), and the planned issuance of international bonds in the first half of CY22 The local currency remained under pressure, despite actions taken by the State Bank of Pakistan regarding restrictions on earning export earnings to support the rupee.
On January 5, 2022, the SBP ordered exporters to realize their export earnings within 120 days from the date of shipment instead of 150 days.
Bostan said the central bank didn’t have much in its sphere, such as the import bill.
“Pakistan imports far more than its needs. If we continue to import from Iran and Afghanistan, the central bank will not be able to do anything.
The local currency has remained under pressure since the beginning of the current fiscal year due to the increase in external payments. The rupee fell 18.95 or 12.02% from 157.54 rupees per dollar on June 30, 2021 to 176.49 rupees on January 24, 2022.