January 4, 2022 (MLN): It is frustrating to see the local currency losing its value against almost all the major currencies in the interbank. Thanks to the hovering uncertainties, vague policy combinations, and other indistinct reasons which have been keeping the market puzzled for Pakistani Rupee (PKR) and compelled it to lose more ground in CY21.

Experts say that on average PKR loses five percent every year against the US dollar during so-called “Normal days” which clearly reflects that CY21 was quite far from the “Normal” as the currency lost PKR16.71 rupees or 9.5% during the outgoing year, against the loss of Rs 4.98 per dollar or 3.12% in CY20.

In CY21, the home unit crossed the lowest ever mark on May 7, 2021, as it closed at PKR152.2, while the highest close was recorded on December 29 at 178.23 per USD.

In the month of December alone, PKR dropped by 1.03 rupees or 0.45% against USD compared to the PKR depreciation of 0.26% in December’20.

To note, the rupee took a breather in March’21 as it recorded a remarkable performance CY21, wherein, the local unit secured its position by 3.50%.

In FY21 PKR had appreciated by 5.14% while in the same period of FY22, it has depreciated by 10.75%

During 6MFY22, the rupee shed its value by PKR18.96 or 10.75%, compared to the appreciation by 5.14% against USD in the same period of FY21. 

As mentioned earlier, the local unit has lost its value in almost all the major currencies in CY21 as it shed 19.8 rupees or 8.32% against GBP, 2.95 rupees or 1.50% against Euro, and 11 rupees or 6% against CHF (Swiss Francs).

The shift from aggressive growth to “Modest Growth” has played its due role in terms of creating muddle. Plus, the government talks with International Monetary Fund (IMF), and its uncleared outlook also formed enough haze in the market.

It is said that the major culprit behind PKR depreciation was the higher import bill on the back of rising commodity prices internationally and Covid-19 vaccines for the mass vaccination.

But the other drivers are working full of their capacity to surge the demand for dollars under the nose of authorities as the terms “Hawala/Hundi and Speculation” were being frequently used in CY21 by government officials.

Not only speculators but also commercial bankers are involved to hoard greenback in the wake of growing uncertainty, as Zafar Paracha, President of Exchange Companies Association Pakistan (ECAP) told Mettis Global.

Cherry on the top, the Taliban takeover of Afghanistan created enough mess for PKR as experts used the phrase “Dollar smuggling from Pakistan to Afghanistan.” Reserves worth more than $9 billion of Afghan's central bank were being frozen by USA. In addition, the IMF and World Bank had also halted the financial aid that was the primary driver of Afghanistan’s economy.

This huge gap was obviously supposed to be filled by other channels and the undocumented transactions from neighboring countries were the best option for the Afghanis. Resultantly, the interbank market in Pakistan saw a notable phase of a dollar flight. 

This is not the end, even the most depressing term “Dollarization” was also being heard in the talk shows which delivered an ominous tone during the period under review.  It means the value of the home unit is reducing sharply and the citizens are also favoring dollar over PKR. 

Here comes the role of the State Bank of Pakistan (SBP) to curb the above mentioned ill elements. During the year, SBP took a number of measures but eventually, the transactions through gray market/Hawala Hundi increased, Khurram Shahzad, Financial expert told Mettis Global.

Unveiling some important figures to Mettis, he said, “Before SBP’s restriction of biometric verification, $7-8million dollars were transacted through the open market on daily basis, but the implementation of biometric verification has narrowed down the transaction to $2-3mn and the difference has been channelized to the grey side.”

The drama has not ended here.

Crypto came into the limelight:

The growing interest in digital coins, called cryptocurrency has captured authorities’ attention in the last quarter of CY21 and these tempting coins were blamed for the dollar flight from Pakistan.

The phenomenon of cryptocurrency has boldly made its way to the discussion on every forum right after when more than a thousand bank accounts/credit cards – found involved in crypto trading, were being blocked on the instructions of the Federal Investigation Agency (FIA).

Sharing his views, Malik Bostan, President Forex Association said, “No doubt, people from Pakistan pay dollars to buy these coins and due to the lack of experience and information, the majority of them end up losing money.”

“However, the digital currency has a lot of potential and the government should regulate the crypto trading which will allow SBP to strengthen its foreign exchange reserves,” he added.

On the other hand, Ahsan Mehanti, Director, Arif Habib Group sees no future for crypto in Pakistan. “Crypto market is unregulated and SBP is not expected to allow for the possible cause of rupee instability in future,” he noted.

Outlook:

Though PKR managed to gain some ground along with stabilization during the last few sessions of the departed year but going forward, it would not observe a major recovery in the near term.

“SBP intervention has stabilised and investor expectation of release of IMF tranche in January helped the rupee to stabilise but it will depreciate by almost 10 percent in CY22 if Brent crude oil prices cross a $120 level which is expected by Jun’22,” Ahsan Mehanti said.

At present, PKR should be around 165 rupees as per the performance of macroeconomic indicators, however, the ongoing depreciation is confusing and given the situation, the outlook is not impressive, Zafar Paracha said.

The situation is alarming for the PKR outlook and raises the question that will it ever be able to restore its lost glory?

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