KARACHI: The dollar reached a 10-month high of Rs165.20 against the rupee on Tuesday as the country’s foreign exchange reserves reached a historic level of $27.4 billion due to the inflow of $2.75bn through Special Drawing Rights (SDR) of the International Monetary Fund (IMF).
The dollar crossed Rs165 for the first time since Sept 30, 2020. The dollar gained 77 paisa against the rupee on Tuesday to close at Rs165.20. The strong appreciation in the dollar reflects weakening local currency due to economic conditions.
The State Bank of Pakistan (SBP) said it received $2.75bn as part of the SDR allocation announced by the IMF. The Board of Governors of the IMF on August 2 approved a general allocation of SDR equivalent to $650bn to boost global liquidity. This is the largest SDR allocation in the history of the IMF and a shot in the arm for the global economy at a time of unprecedented crisis in the shape of the Covid-19 pandemic.
A senior banker said Pakistan received just $2.75bn since its contribution to the IMF is very small. The distribution of $650bn was calculated on the basis of countries’ contribution towards the IMF and a quota is set as per relation with IMF.
IMF inflow takes country’s reserves to $27.4bn peak
The latest SBP data shows the foreign exchange reserves of the central bank are at $17.626bn; including $2.75bn of IMF that would take the total to $20.4bn.
Similarly, the country’s total at present is $24.668bn and including $2.75bn would take the total to $27.4bn which is a record for Pakistan.
However, despite record foreign exchange reserves and easy availability of the US dollar in both open and inter-bank market, the demand for the greenback remained high and it traded at over Rs165 on Tuesday.
The dollar started appreciating since May 7 and has increased by 8.5 per cent, gaining about Rs12.92. The steep rise will hit exports as the exportable products are prepared with the imported constituents in the range of 30pc to 35pc.
The 8.5pc depreciation of local currency would also be translated into the prices of petroleum products including LNG, thereby escalating inflation and increasing the cost of production. This in turn would make it more difficult to enhance exports with additional costs of inputs.
Analysts believe the deprecation of local currency is also the result of SBP’s approach that the exchange rate would respond to the estimated increase in the current account deficit (CAD) for FY22. The SBP estimates CAD would be in the range of 2pc to 3pc of GDP against 0.6pc of GDP in FY21. The SBP says deficit would be due to higher import bills and this would be the result of enhanced economic activities in the country during FY22.
Published in Dawn, August 25th, 2021