KARACHI: Currency experts and dealers say the exchange rate is still under a strong grip of political and economic uncertainty, even after one of the quickest recoveries in the past week.

The rupee has gained 3.5 per cent in the interbank market since April 7 to reach 181.55 on Saturday, according to State Bank of Pakistan data.

Before that recovery, the dollar rose on the back of speculation by currency players amid political turmoil.

However, currency dealers believe the exchange rate can once again start moving in favour of the dollar because apparently there isn’t any force that can protect or strengthen the rupee.

Rupee strengthened 3.5pc against the dollar in interbank market since April 7

“Foreign exchange reserves of the country, particularly of the State Bank, have been declining, which is sending a strong negative signal to the currency market,” said Atif Ahmed, a currency dealer in the interbank market.

He said the growing import bill showed the trade deficit would continue to widen in the coming weeks and months.

“We paid over $14 billion to import petroleum products during the first nine months [July to March] of this fiscal year, almost twice as compared to a year ago,” he said.

Malik Bostan, the chairman of the Exchange Companies Association of Pakistan, agreed that the situation was far from normal. “Uncertainty is still there. The political crisis is in not yet over. We are living under the grip of all sorts of uncertainties, which will not allow the exchange rate to get stability.”

He said the country’s economic managers should closely watch the developments in Sri Lanka, which was not attacked by any country, but the country’s economy was still in trouble and citizens were on roads demanding food and fuel.

Earlier this week, Sri Lanka announced a default on its $51 billion foreign debt as the island nation is grappling with its worst economic downturn since independence in 1948, with regular blackouts and acute shortages of food and fuel in addition to record inflation.

Mr Bostan said Pakistan’s external front of the economy was dangerously exposed, particularly due to falling foreign exchange reserves and resident accountholders having withdrawn dollars from commercial banks. Pakistanis withdrew $329m from March 25 to April 8 from commercial banks.

Rising global oil prices and its high demand at home have pushed up the import bill.

However, bankers and analysts said it was not only the oil import bill that has been rising. A surge was also noted in the import of vehicles, machinery and vaccines. The government is also importing wheat and sugar and costly palm oil.

Aamir Aziz, a manufacturer and exporter of finished textile goods, said the industry had been importing modern textile machines to compete with regional countries. He said Bangladesh and India were already working with state-of-the-art machines.

He said growth of 8.4 per cent in large-scale manufacturing (LSM) in February reflected the increase in industrial activity. However, the LSM growth during July-February averaged out at 4.6pc.

The growth pattern is also reflected through a 170pc per cent increase in the private sector credit offtake during the first nine months of the current fiscal year.

However, currency dealers said the outflows of dollars from banks and domestic bonds reflected the uncertainty looming over both political and economic fronts.

“The demand is still high. Importers are willing to buy more, but the State Bank’s restrictions have kept buying and selling at a certain level,” said Atif Ahmed, the currency dealer.

There was no official confirmation, but the sources in the financial circle said paperwork had been completed for the rollover of $2.4bn from China. Pakistan paid back the due amount to China, whose foreign minister assured Islamabad of the rollover of the same amount.

The rollover will help the foreign exchange reserves of the State Bank, which have almost halved to $10.5bn this week from $20.07bn in August.

Bankers said the country still needed $15bn for debt servicing and other foreign obligations until the end of June, while widening trade and current account deficits were still the biggest challenges facing the country.

Published in Dawn, April 17th, 2022