Pakistani rupee (PKR) against major currencies like the US dollar (USD) has been a pressing concern for businesses. This week closing at 278.42 against the USD, marking its fourth consecutive loss.
Key Developments in the Currency Market
1. PKR Performance Against Major Currencies
- US Dollar (USD):
- Closed at 278.42, down by Rs. 0.07 from the previous day.
- Euro (EUR):
- Stood at 289.0552 in the inter-bank market.
- British Pound (GBP):
- Ended at 348.0941.
- Australian Dollar (AUD):
- Closed at 173.8730.
- Canadian Dollar (CAD):
- Valued at 193.5485.
- UAE Dirham (AED):
- Recorded at 75.8017.
- Saudi Riyal (SAR):
- Traded at 74.0714.
These fluctuations reflect the challenges faced by the PKR amid global and domestic economic factors.
2. Real Effective Exchange Rate (REER) Insights
In November 2024, Pakistan’s REER hit 102.92, its highest level since April 2024. A rising REER indicates improved competitiveness in the global market, yet it often poses challenges for exporters due to higher relative costs.
3. Current Account Surplus Brings Hope
Amidst currency challenges, Pakistan recorded a 10-year high current account surplus of $729 million in November 2024. This positive development suggests better trade balances and controlled imports, offering a ray of hope for economic recovery.
Why Is the PKR Depreciating?
1. Global Factors
- Strengthening of the USD due to high interest rates and global demand.
- Economic slowdown in trading partner economies impacting remittances and exports.
2. Domestic Challenges
- High inflation and rising import bills.
- Political instability affecting investor confidence.
- Low foreign exchange reserves creating pressure on the PKR.
Impact on the Economy
1. Inflation Surge
A weaker PKR increases the cost of imports, leading to higher prices for essential goods and services. This adversely affects household budgets, especially for middle- and lower-income groups.
2. Export Competitiveness
While a depreciating currency can boost exports, the lack of structural reforms and high production costs often negate this benefit in Pakistan.
What Lies Ahead for the PKR?
Short-Term Outlook
- Continued pressure due to external debt obligations and limited foreign reserves.
- Potential relief from international aid or IMF packages.
Long-Term Measures
- Diversifying export products and markets to reduce dependency on specific sectors.
- Encouraging remittances through official channels to bolster foreign reserves.
- Structural reforms to stabilize the economy and attract foreign direct investment (FDI).
