KARACHI: The Pakistani rupee rose by 2.8 per cent versus the US dollar in the outgoing fiscal year, thanks to the successful completion of the International Monetary Fund’s loan programme that shored up foreign exchange reserves on top of the government’s efforts to throttle illegal dollar transactions.
After three years, the rupee has appreciated versus the US dollar. The rupee finished at 278.34 per dollar in the interbank market on Friday, the currency market’s last trading day of FY24. The rupee weakened by 28 per cent in the last fiscal year due to the dried foreign inflows and dwindling forex reserves. On June 27, 2023, the closing value of the rupee was 286 to the dollar. On June 30, 2022, the local unit had ended at 204 against the greenback.
Pakistan secured a $3 billion bailout from the IMF last summer to prevent a sovereign default. The IMF’s stand-by arrangement ended in April this year. Pakistan was able to obtain timely funding from both bilateral and multilateral partners due to the IMF’s programme. Additionally, a controlled current account deficit amid subdued domestic demand contributed to reduced imports, as well as exchange rate reforms attracting remittances back to the official banking system.
The central bank’s forex reserves have increased from $4 billion at the end of June 2023 to $8.9 billion as of June 21, 2024
In a note, Karachi-based brokerage house Arif Habib Limited stated that a decline in the current account deficit; improved foreign inflows; a narrowing of the gap between open and interbank rates; and other administrative measures are the main causes of the rupee’s strengthening in FY24.
“The administrative measures taken by the government to crack down on the smuggling of dollars outside Pakistan notably to Afghanistan as well as to curb the dollar trading in grey markets were a big factor, including reforms for exchange companies,” said Mustafa Mustansir, the head of research at Taurus Securities.
Additionally, the State Bank of Pakistan’s daily publication of the official open market rate on its website, together with the growing documentation required for the purchase and sale of foreign exchange, all contributed to the official flow of USD that stabilized the rupee, he said.
“Another significant step was the SBP’s instructions to banks to clear letters of credit and dollar payments only to the extent of their respective dollar inflows,” Mustansir added.“This helped maintain an overall balance in the USD market helping the rupee maintain its level because virtually demand was being met by supply.” This, he said, finally led to the overall improvement in Pakistan’s macros.
On September 5, 2023 the rupee fell to a record low of 307.1 versus the dollar. However, since the nation’s financial regulator and security agencies started to stop black market activities, the rupee sharply recovered and now stands at 278.34 against the dollar.