KARACHI, June 18: A more than 78 per cent increase in imports in the last month has taken its toll on the exchange rate and the US dollar seems set to cross Rs58 mark by the end of this month.

Pakistan paid an import bill of $1.73 billion in May 2004 up from $970 million in May 2003 as the economy showed signs of growth during this fiscal year. This $760 million or more than 78pc increase in import bill amidst negligible growth in exports made the rupee weaker.

Exports in May 2004 totalled $1.06 billion only one per cent up from $1.05 billion in May 2003. The result was that the rupee shed 22 paisa against the US dollar in inter-bank market: It fell to 57.69 a dollar at end- May 2004 from 57.47 at end-April.

The import-led higher demand for the dollar continued in June also making the rupee still weaker. What added extra pressure on the exchange rate was pre-payment of $387 million by Pak Arab Refinery Co. in external debt and penalty to the Japan Bank for International Cooperation or JBIC.

Consequently the rupee shed more of its value against the US unit. It has so far lost 26 paisa-falling to 57.95 on June 18 from 57.69 at the end of May 2004. Thus in less than two months up to June 18 the rupee has lost 48 paisa or more than 0.8pc of its value against the US dollar.

Senior bankers say that the way the demand for the dollar is building up shows that it would easily cross the Rs58 mark by the end of this month. "We see the dollar rising past Rs58 within this month," said treasurer of a major local bank.

So strong has been the demand for the dollar in the inter-bank market that the central bank has failed to keep the rupee stable despite selling dollars to the banks in need of foreign exchange.

But this is not a cause of concern for the central bank nor for the government because so far this fiscal year the rupee has shed only 14 paisa or 0.25pc of its value against the US unit. It has come down to 57.95 from 57.81 at the end of June last year.

So even if the dollar rises past Rs58 by the end of this month this would mean 0.3pc fall in its value during this fiscal year. "This nominal depreciation in the rupee value is absolutely no cause of concern," said a senior central banker who declined to be identified.

A manageable decline in the rupee value is rather desirable because it keeps Pakistani exports competitive in the world markets. In the last fiscal year the central bank had deliberately kept the dollar from falling too rapidly on the back of higher inflow of foreign exchange from expatriate Pakistanis to benefit the exporters.

It had contained the appreciation in the rupee value to 3.7pc. Had it not made big dollar buyings from banks the rupee value would have appreciated by a much bigger margin.

What has made the rupee weaker during this fiscal year is that not only the foreign exchange inflows have slowed down but trade deficit has expanded. In July/May 2003-04 Pakistan's exports rose by about 12pc to $11.061bn from $9.895 billion in a year-ago period.

But its imports went up by more than 24pc to $13.735bn from $11.067bn in the comparable period of last fiscal year. Thus the trade deficit expanded to $2.674bn in 11 months to May 2004 from $1.166bn in a year-ago period.