The country’s current account deficit widened by 64 per cent to $2.5 billion during July-August of current fiscal year mainly due to slowdown in exports and rising trade deficit, besides slow foreign inflows.

Official statistics revealed that during July-August of FY09 the country faced a current account deficit of $2.572 billion against $1.571 billion during the corresponding period of last fiscal year. Increasing trade deficit followed by slow growth in exports and high imports coupled with rising oil and food import bill are the chief reasons for this raise in the current account deficit. Trade deficit has surged by 67 per cent.

At the same time, the country’s domestic debt has shot up by Rs662.7 billion in FY08 against an increase of Rs279 billion in FY07, depicting a rise of 137 per cent in 2008. With current upsurge, domestic debt hit a new peak of Rs3.26 trillion in FY08 as compared to Rs2.60 trillion in FY07. The country’s foreign exchange reserves have also fallen to $8.91 billion in the week that ended on September 13. The State bank of Pakistan weekly report reveals that the reserves held by the central bank declined to $5.5248 billion during the week.

Meanwhile, Pakistan GDP growth is expected to decrease to 4.5 per cent in the current financial year against 5.8 per cent achieved in the last fiscal year, as the country would continue to face the deteriorated state of economic fundamentals and inflationary pressures. Economists have expressed deep concern over the current state of the economy. The unprecedented increase in global oil and food prices and domestic policy uncertainties in a turbulent political year have stressed the economy.

A slowdown in growth, build-up in inflation, wide fiscal and current account deficits and a large drop in foreign reserves will continue to negatively impact weaker rupee. The rupee has already weakened by 20 per cent against the dollar in the local currency market over the past nine months. Steep decline in the rupee value has taken place in the past two weeks. The rupee has depreciated by 7.5 per cent against the dollar in the past 15 days.

In the local currency market, the downtrend in the rupee/dollar parity persisted this week. The rupee commenced the week on dismal note as it continued its falling trend against the dollar in the inter bank market, where it suffered fresh losses over previous week close of Rs76.45 and Rs76.55. It sharply shed 17 paisa on buying counter and 15 paisa on selling counter importers demand for dollar continued to exert downward pressure forcing the rupee to trade at Rs76.62 and Rs76.65 against the dollar on September 15.

On September 16, the rupee touched Rs 77 mark against the dollar in the inter bank market on sharp increase in dollar demand. At day close, the dollar was at Rs76.95 and Rs77 after losing 33 paisa on buying and 35 paisa on selling. On September 17, the rupee crossed Rs 77 mark against the dollar and was seen heading to touch Rs 78 mark before closing the day at Rs77.30 and Rs77.55 after shedding 35 paisa on the buying counter and 40 paisa on the selling counter.

Tight dollar supplies on September 18 exerted further pressure on the rupee. The rupee fell by another 40 paisa on the buying counter and 35 paisa on the selling counter and traded against the dollar at Rs77.70 and Rs77.75. On September 19, short dollars supplies dragged the rupee down to record lows against the US currency. The rupee during the day posted fresh losses of 20 paisa on the buying counter and 25 paisa on the selling counter and traded at Rs77.90 and Rs78. Continued down slid in the rupee value in relation to dollar in the interbank market this week has resulted in cumulative loss of 145 paisa.

In the open market, the rupee commenced the week with mixed sentiments versus the American currency. While it remained unchanged at its weekend’s level on the buying counter it continued its slide on the selling counter, shedding 10 paisa to trade at Rs76.50 and R 76.90 on September 15. Last week, the parity had closed at Rs76.50 and Rs76.80. The downward trend in the rupee/dollar parity persisted on the second trading day, as the rupee extended its overnight losses versus the dollar and shed 20 paisa for buying and 10 paisa for selling to change hands at Rs 76.70 and Rs77 on September 16.

On September 17, the rupee continued to weaken against dollar. It posted fresh losses of 30 paisa and traded at Rs77.00 and Rs77.30. The falling trend persisted on September 18, when the rupee further lost 20 paisa, changing hands versus the dollar at Rs77.20 and Rs77.50. Finally the rupee ended the week on September 19, trading against the dollar at Rs77.70 and Rs78 after shedding 50 paisa more over its overnight levels. During the week in review, the rupee in the open market lost 120 paisa against the dollar.

Versus European single common currency, the rupee continued its slide on the opening day of the week, posting fresh losses of Rs1.40 on September 15, changing hands at Rs109.90 and Rs110.05 compared to its previous week close of Rs108.50 and Rs108.70. However, the rupee managed to recover Rs1.30 in a sharp turnaround on the second trading day. The euro traded at 108.60 and Rs108.75 on September 16. On September 17, the rupee traded both ways against the euro, further gaining 10 paisa on the buying counter but shedding 25 paisa on the selling counter. As a result, euro traded at Rs108.50 and Rs109.30 on the day.

On September 18, the rupee suffered sharp losses against the euro as it shed Rs1.90 on the buying counter and Rs1.20 on the selling counter to trade at Rs110.40 and Rs110.55. At the close of the week, however, the rupee posted a sharp turnaround against the European single common currency as it managed to gain95 paisa on buying counter and 75 paisa on selling counter, changing hands at Rs109.45 and Rs109.65 on September 19. As a result of last day’s reversal, cumulative loss in rupee value against the euro restricted to 95 paisa this week.

On the international front, the euro rose 0.2 per cent to $1.4256, though it remained off its session high of $1.4479 on September 15. The dollar fell to a low on the day at 104.55 yen. It was last down 2.8 per cent at 104.85. Sterling was trading down almost 0.5 percent at $1.7864, though off an earlier low of $1.7768 reached just before the US stock market opened. In early trade, the pound had hit a two-week high of $1.8128.

On September 16, the euro slipped 0.8 percent to $1.4153, in late New York trading, well off opening week’s session peak at $1.4479. The dollar rebounded from near four-month lows against the yen, rising to 106.24, up 1.6 per cent on the session, the best day since April 1. Sterling fell more than one percent against the dollar. The pound was down 1.1 percent against the dollar at $1.7788. That compared with the day’s low of $1.7733 and last week’s 2-1/2 year low of $1.7445.

On September 17, the euro last traded up 1.4 per cent at $1, after trading as high and as low as the global session. The dollar dropped as low as 104.39 yen at one point, closer to the nearly four-month troughs seen on September 16. It was last down 1.1 per cent at 104.55 yen. The pound was up 0.6 per cent against the dollar at $1.7963, having earlier hit a low for the day of $1.7789.

On September 18, the US dollar rose against the yen and recouped most losses against the euro in a broad surge with US stocks. It was last up 1 percent against the yen at 105.36 yen. The euro rose 0.3 percent against the dollar at $1.4345, after touching a two-week high of $1.4541. As the dollar benefited from a rebound in US stocks triggered by coordinated central bank action to help beleaguered money markets, sterling trimmed gains and was up 0.3 per cent at $1.8194, after hitting a session high of $1.8276.

At the close of the week on September 19, the euro dropped 1.3 per cent from late US trade to $1.4160, extending its fall from previous day’s high of $1.4543, which was a two-week high. The dollar climbed 1.6 per cent to 107.10 yen, jumping more than one yen from the day’s lows around 105.40 yen. Sterling rallied against the dollar with risk aversion easing as the Federal Reserve took further steps to boost liquidity and soothe the battered banking system. The pound was up 0.5 per cent at $1.8256, just off a three-week high of $1.8288 hit after the Fed announcements.