Sajid Irfan

The Pakistani rupee after sharp depreciation against dollar has recently regained value, which is expected to put a positive impact on trade balance.

Depreciation of local currency against dollar directly affects exports and imports. Exports become cheaper for the foreign countries resulting in curtailed profit, whereas imports become expensive, and trade deficit mostly widens in such situations.

Director General of International Islamic University Islamabad (IIUI), Professor Dr Abdur Rashid told WealthPK that up to the first week of July 2022, the Pakistani rupee was continuously going downwards, and was in the worst condition.

“In an open economy, when the local currency is depreciated, the possibility of trade deficit increases like we see in Pakistan,” he said.

Prof Abdur Rashid mentioned that in 2017, the United States had a deficit of about $450 billion, the United Kingdom around $100 billion, and Canada around $50 billion. Other countries export much more than they import. China is a huge manufacturer and had a trade surplus of over $160 billion. Japan, South Korea, and Germany also have trade surpluses.

“Pakistan’s total imports grew by 59.6% in June 2022, compared to an increase of 63.2% in May 2022. The total import bill of the country increased to $80.02 billion during fiscal year 2021-22 as compared to $58.38 billion in the preceding fiscal year,” he said.

Dr Abdur Rashid said Pakistan’s exports also posted an increase of 25.51% to $31.76 billion in FY22, as compared to $25.30 billion in the preceding fiscal year. Pakistan posted a record trade deficit of $48.26 billion in FY22.

He said that sudden appreciation of rupee is because of the reports about improvement in economic fundamentals and future outlook of the economy, which caused a reversal in market sentiments.

Dr Abdur Rashid said that in case this appreciation is without the backing of strong macroeconomic fundamentals, then volatility in currency will take place in near future.

Consequently, with rising export prices, exports will plummet and import-bill will be higher. Remittances inflow will also slow down. Thus, appreciating currency to the point where the country is no longer competitive in the international market can cause the economy to be in stagnation and will thus have adverse implications for balance of payments.

Dr Abdur Rashid said that there are many reasons for the sudden appreciation of the Pakistan currency, and one of them is the announcement of the IMF loan programme.

“The advantage of this rupee appreciation is related to balance of payments. Import bill will be decreased to some extent due to the appreciation of Pakistani rupee,” he added.

Independent News Pakistan-Wealthpk