Pakistan’s currency hit an 11-month low at Rs165.20 against the US dollar in the inter-bank market despite the receipt of a significant amount of foreign funds from the International Monetary Fund (IMF) on Tuesday.

The development suggests the theory the country’s rupee-dollar exchange-rate moves up or down in accordance with the situation on demand and supply of the foreign currency has become ineffective.

Apparently, authorities have let the rupee depreciating to discourage rising imports and encourage exports in an attempt to narrow down the widening trade deficit which poses a serious threat for the domestic economy.

More importantly, the rupee might be moving down in search for its value fit for resuming the IMF $6 billion loan programme which is on hold for the past two months. The country is set to hold staff level talks with IMF to resume the programme next month; September.

In another development, the State Bank of Pakistan (SBP) received $2.75 billion from the Washington-based global lender on Tuesday under its new allocations for member countries to support them fight against Covid-19 challenges and increase their capacity to make international payment for imports and foreign debt repayments.

The receipts have boosted the country’s foreign currency reserves to all-time high at $20.4 billion, according to a research house.

There is no connection between the two; IMF receipts worth $2.75 billion and its programme worth $6 billion on hold.

With a fresh drop of about half a percentage point (or Rs0.77) on Tuesday, the rupee has depreciated by 4.86% in the current fiscal year (since July 1) to date and 8.49% since it hit a 22-month high at Rs152.27 in May 2021, according to the central bank’s data.

Earlier, the rupee dropped to record low at Rs167.43 to the greenback in August 2020.

“The rupee is going down amid unfolding political situation in bordering country Afghanistan where Taliban are in need for the dollars to run the country while the US has denied giving them access to their foreign exchange reserves amounting to $9 billion,” Exchange Companies Association of Pakistan (ECAP) President Malik Bostan said while talking to The Express Tribune.

The situation may encourage currency smugglers to continue with the practice of illegally supplying the dollars from Pakistan to Afghani traders.

“A number of Afghan people are legally operating companies in Pakistan. They may use the companies to import goods in Pakistan and latter dispatch them to Afghanistan,” he said.

Pakistan has been complaining about misuse of Afghan transit trade agreement, which is primarily meant for officially facilitating the landlocked state for conducting trade with the world through Pakistani sea.

Published in The Express Tribune, August 25th, 2021.

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