KARACHI: Due to political upheaval and intermittent suspensions of the International Monetary Fund (IMF) lending programme, the Pakistani rupee has continued to depreciate against the US dollar into the year 2022. On Friday, the rupee fell 22% year-over-year to Rs226.43 versus the dollar in the interbank market.
However, it is predicted that 2023 would be another depressing year for the native currency. By June 30, 2023, several local research firms predict that the value of the rupee would fall to between Rs250 and Rs270 per dollar. Despite the IMF restarting its lending programme for Pakistan sometime in February 2023, others forecast the currency falling to Rs265-270 by December 31, 2023.
Umair Naseer, director of research at Topline Securities, told the Express Tribune that the black market price of the dollar, which is now between Rs250 and Rs260, is the rupee’s true worth.
Given that Finance Minister Ishaq Dar only partly controls the interbank market’s rupee-dollar exchange rate, it has become ineffective. “This (managed exchange rate) has continued to be one of the key causes of the IMF program’s current suspension.”
Adnan Agar, director of AA Gold Commodities, warned that “the currency may devalue to Rs280-300 or more in case Pakistan and the IMF fail to begin the plan soon” in an interview with The Express Tribune.
However, Pakistan will eventually be able to get the agreement since it has shown a willingness to carry out the stringent requirements set out in the programme.
The Russia-Ukraine conflict, according to Naseer, “proved to be the worst incident of the year, on a global level, touching practically every nation including Pakistan.”
Global inflation reached a 40-year high as a result of the war’s jump in commodity prices, causing foreign banks to raise interest rates. For nations like Pakistan, “this has made the work of borrowing fresh debt exceedingly costly, having an effect on its foreign currency reserves,” he added.
The currency received no favours on the domestic front either. In April 2022, the Pakistan Tehreek-i-Insaaf (PTI) administration was overthrown by a vote of no-confidence. Since that time, the rupee has risen steadily, reaching an all-time high of Rs239.94 versus the US dollar in late July 2022.
The temporary suspension of the IMF programme at the time was caused in part by the change of administration and the introduction of local petroleum product subsidies totaling more than Rs1 billion per month, which had a detrimental effect on the currency through February. “The suspension of the IMF programme until the end of August 2022 was caused by the delay in putting severe choices by the then-new Pakistan Muslim League-Nawaz (PML-N) coalition government into effect, notably the withdrawal of a subsidy on petroleum goods. The rupee-dollar parity and the nation’s foreign currency reserves continued to be impacted by this, according to Naseer. The decline in the volume of US dollar inflows via legal channels and the depreciation of the local currency, he said, are both largely due to the control of the rupee-dollar parity in the inter-bank market.
Through official channels, the flow of remittances from Pakistanis living abroad reached a 27-month low in November 2022 of $2.10 billion, 14% less than in November 2021. This put undue pressure on the currency.
Similar to this, it is said that exporters use illicit hawala-hundi to collect a portion of their payments in order to profit the most from the high value of a dollar (Rs250–260) on the black market as opposed to one (Rs227) on the inter-bank market.
There has also been information of a significant decline in recent months in overall export revenues. Additionally, this has contributed to the rupee’s appreciation versus the US currency.
The rupee-to-dollar parity and Pakistan’s foreign currency reserves were both severely harmed by the Taliban government’s restoration to power in Afghanistan. “Afghanistan has been draining nearly $2 billion every month by smuggling US money and high-value goods (including wheat and fertiliser) from Pakistan,” said Malik Bostan, president of the Exchange Companies Association of Pakistan (ECAP).
The rupee will continue to depreciate in 2023, according to Naseer.
Low foreign exchange reserves, a decline in export revenues, fewer employees sending money home, and a gradual reopening of imports would all contribute to a depreciation of the rupee, he said.
The government was compelled to almost completely stifle supplies in the open market as a result of the foreign currency reserves plummeting from $20 billion around 16 months ago to the worrisome level of $5.8 billion at the moment.
Businesses and people were therefore forced to store their money in gold to avoid the sharp depreciation. This provided gold the boost it needed to reach an all-time high of almost Rs183,900 per tola (11.66 grams).
According to Topline Research, “Gold has emerged as the top asset having delivered the single biggest return on investment thus far in 2022.” After increasing by 11% in 2021, gold saw a rise of 41% in 2022, jumping from Rs108,200 (per 10 gm) to Rs152,700. Gold prices increased in the local Sarafa/bullion market in tandem with the rise in the black market’s exchange rate for the US dollar. Instead of being valued at the official rate, which is 10% lower, gold is now priced at black market parity. Although gold prices on the global market are expected to stay fairly constant in 2022, according to the research firm.
“However, local gold market is now also reporting a lack of the precious commodity in the market indicating its price may keep a lingering high in the New Year 2023,” it stated. “After dollars vanishing from the open market, however, According to Abdually Abdul Razaq, a member of the All Pakistan Sarafa Gems and Jewellers Association (APSGJA), “Gold may even go up to Rs 200,00 a tola in the next months if the IMF scheme continues derailed.”
Given that gold is a commodity that is traded globally and there are so many events taking place on a global scale, it is too impossible to make a prognosis for the whole year. However, the price of gold may remain steady throughout the next three months of 2023, according to the director of AA Gold Commodities.
Agar said, “Gold is all set to lose $100-150 per ounce over the next three months, reaching $1,650 to 1,700 considering foreign banks may contemplate lowering their interest rates.” However, he said, the anticipated depreciation of the rupee may potentially counteract the decline in gold prices on the international markets.
On the first working day of 2023, gold continued its impressive climb from the previous year, rising by a new Rs3,300 per tola (11.66 grammes) to a new all-time high of Rs 187,200 on Monday. Despite the fact that the price in the international markets remained stable at $1,824 per ounce (31.10 grammes) and that the local inter-bank currency market was shut down for the day, the pricing body raised the rate.
However, the gold market utilises the black market rate for the rupee to determine the price of bullion every day, indicating that the currency has fallen even lower there. The currency’s previous exchange rate to the dollar was between Rs250 and Rs260. The current price of gold in Pakistan is Rs6,500 per tola more than that offered in Dubai, indicating that the Pakistani bullion market has increased in price relative to the global one. Investors should be concerned about this since Pakistan is a relatively tiny market in comparison to other countries.