July 05, 2023 (MLN): FY23 turned out to be an utter nightmare for the Pakistani rupee (PKR) as it stumbled in the depths of default noise, pitiably weak macros, foreign exchange evaporation, plummeting remittances, and an excruciating economic slowdown, all accompanied by a never-ending political crisis.
Surrounded by tumultuous circumstances akin to a blood pool where axes were relentlessly thrown from every side, the local unit closed the outgoing year at PKR 285.99 per USD, compared to PKR 204.85 on June 30, 2022, marking around a 40% (81 rupees) depreciation throughout the year.
On May 11, 2023, the domestic unit hit an all-time low at PKR 298.93 per USD.
Throughout the fiscal year, PKR appreciated against the greenback only in August 2022, October 2022, and February 2023 with an up of 9.43%, 3.42%, and 2.44%, respectively whereas in January 2023, the local unit recorded the highest-ever monthly drop of 15.47%.
This yearly drop marked the third-largest increase in history. The highest appreciation was recorded at 131% in FY72, coinciding with the loss of East Pakistan, according to Fahad Rauf, Head of Research at Ismail Iqbal Securities.
If Pakistan's 76-year history is divided into decades, the ongoing decade has witnessed the largest increase in the USD rate, with four years still remaining, he added.
The magnitude of the negative events was far greater than the positive events which in turn badly crushed the local unit.
No doubt, the political melancholy and delay in the IMF tranche were slowly poisoning the economy which was already in shambles due to drying up foreign exchange reserves, witnessing a substantial decline of $6.2bn to $3.5bn by year-end and moving closer to the debt repayment deadline.
All of this fueled the uncertainty where people started hoarding gold and dollars against PKR which led to the shortage of dollars in the open market that created a huge difference between open market and interbank rates.
Soaring inflation along with IMF influence forced the State Bank of Pakistan (SBP) to raise the interest rate by 700 bps to 22% during FY23.
Meanwhile, Pakistan posted the current account surplus for the month of May 2023 witnessed a notable surge of 3.26x MoM to stand at $255 million compared to the surplus of $78mn in April 2023.
Within 11MFY23, the current account deficit reduced to $2.94bn compared to the deficit of $15.16bn in the same period last year, shrinking by 81% YoY.
Furthermore, remittances by overseas Pakistanis moved down by 13% YoY to $24.83bn in 11MFY23 from $28.48bn recorded in the same period last year. On the manufacturing front, the LSMI also dropped by over 9% in 10MFY23. All in all, the whole year proved to be a double-edged sword.
Though the fiscal year 2023-24 started on a cheering note wherein the market is celebrating IMF’s nod of a fresh Standby Agreement (SBA) which eased some pressure off from the local unit during the starting days of FY24, the respite can be temporary due to tough conditions of IMF.
Going forward, the demand for dollars will again increase as the SBP has lifted all the restrictions on imports which may take the domestic unit once again under pressure.
In addition, the economic outlook of the country is not so appealing due to weak macros. It remains to be seen how long the spark of this standby agreement will last.
Copyright Mettis Link News
Posted on: 2023-07-05T23:45:34+05:00
