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Rupee recovers on rising remittances

July 01, 2012


KARACHI, June 30: The fast depleting foreign exchange reserves have once again started getting strength as remittances from overseas Pakistanis are increasing prior to Ramazan, bankers and money-changers said.

The exchange rate received a serious blow during the just ended fiscal year 2012 as rupee lost nine per cent against the dollar and foreign exchange reserves fell by more than $3.4 billion.

Currency experts said that the rupee, which took a nosedive during last two months against the dollar, might see a spell of stability at the current level in the wake of increasing remittances. However, bankers said that the government is yet to approach the IMF for further loans and is willing to reduce load-shedding by generating more electricity which would require more oil imports. And further import of oil would over-burden the import bill, already crushed under massive oil import of $13.220 billion compared to $10.932 billion import in the previous year.

As general elections are approaching, the government is desperately making efforts to improve its shattered image, particularly regarding unannounced load-shedding across the country. The new Prime Minister is willing to remove the bad image. It would require more electricity and ultimately more dollars to import oil.

“This scenario demands a cautious approach by currency experts. We hope that increasing remittances would help stabilise current status of exchange rate for the next couple of weeks, but higher oil imports may change our strategy,” said Atif Ahmed, a currency dealer in the inter-bank market. The remittances rose at the rate of 19 per cent each month and rose to $12 billion in 11 months. Pakistan may receive about $13.2 billion more at the end of June 30.

However, even higher remittance cannot support the weakening exchange rate as oil bill may touch a total of $14.4 billion, particularly in case of higher import of oil for increased electricity.

Anwar Jamal said the exchange rate may remain stable for a few days or weeks as dollar has lost against the Indian rupee.

“Pakistan’s rupee lost because dollar gained globally. Indian rupee gained Rs2 against the dollar in last three days which may weaken dollar against other currencies too,” said Anwar Jamal.

Currency experts said they remember two important aspects regarding the exchange rate and availability of dollars to the country.

Firstly the government has yet not approached the IMF for loans while it has just paid about $110 million and another payment is expected in July. It had paid $400 million in May.

Secondly, the Governor State Bank had told the Wall Street that Pakistan’s reserves would be around $8 billion by mid of next fiscal (FY-13).

These two reasons are strong indicators that may lead to weakening exchange rate in the coming days,” said Ahmed.