FLUCTUATION OF US$ & ITS IMPACT ON THE

ECONOMY OF PAKISTAN





Researched & Compiled by
Insaf Research Team
irt@insaf.pk
Adnan F. Rehman: 03454888878
Faisal Hameed: 03314077640
Rana M. Ahmad: 03018444472
Shahbaz A. Khan:03147779222




Date: Apr 23, 2014


Insaf Research Team (IRT)

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FLUCTUATION OF US$ & ITS IMPACT ON THE
ECONOMY OF PAKISTAN

Impacts of US$ Decline on the Economy of Pakistan:
The Rupee Dollar parity now stands at 97.6 in the inter-bank market
increasing by Rs.1.40 from the first day of current week as in the graph below.
Overall Pak Rupee is gaining strength as far as the US$ have declined
dramatically10%+ within 10-days all the charts defining the real picture of US$ Vs
PKR game

According to the forex market experts, the open market rates for the
greenback were Rs99.90 in buying and Rs100.45 in selling. However, the inter-bank
rates dropped further to Rs99.50 in buying and Rs99.70 in selling in the mid of
March-2014. The ongoing trend in the open market suggests that the value of the
rupee has fallen by 0.99 per cent from Monday, and dropped by 5.64 per cent
since January.



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Dollar Rate Chart from 1
st
April to 21
st
April

Dollar Rate Chart from 1
st
March-2014 to 21
st
April



01-04-2014
PKR: 98
21-04-2014
PKR: 97.5
15-04-2014
PKR: 95.7
01-03-2014
PKR: 104.9
03-03-2014
PKR: 98
15-04-2014
PKR: 95.7

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Dollar Rate Chart from 1
st
June-2013 to 21
st
April-2014

Dollar Rate Chart from 1
st
January-2013 to 21
st
April-2014

07-06-2013
PKR: 98.25
06-12-2013
PKR: 108.30
18-04-2014
PKR: 96.2

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The current trend in the inter-bank trading showed a drop of 2.64 per cent
from yesterday, and a 5.23 per cent fall from last month. The difference in both the
open market and the inter-bank trends is a rise of 1.01 per cent and 1.73 per cent
respectively. March depreciation caused exporters and foreign currency account
holders to further sell their dollars to avoid losses. Experts say that if the rupee
stabilizes to a certain extent, the prices of food items would decrease.

Finance Minister Ishaq Dar, in December 2013, had vowed to depreciate
the greenback to below Rs100. He also urged investors to en-cash their dollars in
order to avoid losses. Inter-bank dealers predicted the previous day that the rupee
would continue to appreciate further on Tuesday while the dollar would fall to
around the Rs 97-level. As for as Sentiments have shifted due to positive IMF staff
reviews, expectations of significant aid, investment inflows in 2014, and
interventions by the State Bank of Pakistan (SBP) through the forward/swap market.
An inflow of investment in fiscal year 2013-14 also helped shift market sentiments in
favor of the rupee. According to the SBP, Pakistan received foreign direct
investment (FDI) of $523 million in the first seven months of 2013-14. FDI amounted
to $106.9 million in January alone.




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In addition, the expected receipt of $550 million from the International
Monetary Fund (IMF), along with the launch of Eurobonds amounting to $500
million likely next month, has also led to positivity in the foreign exchange market.
While appreciation of the rupee will contain inflation, a stronger currency will
inevitably make exports less competitive. Hence, a widening trade gap will put
more pressure on foreign exchange reserves, forcing the SBP to readjust the rupee
to equilibrium levels. Plus, its going to be windfall for importers to enjoy higher
margins by not fully passing on the impact of rupee appreciation. Even if they do
pass on the benefit then higher import demand may put a pressure on balance-
of-payment.

Impact on Exports: Pakistan Hosiery Manufacturers & Exporters
Association (PHMEA) expressed concerns over the appreciation of Pak rupee
against dollar, which has a serious impact on exporters. “The appreciation of
rupee against dollar is no doubt a very good sign; however, this has seriously
impacted country’s exports. The foreign buyers signed deals with Pakistani
exporters three to four months ahead of the shipments. “Exporters, who have
taken orders on the costing before the increase in value of rupee, will be seriously
affected as by the time payment is realized there would be a difference of

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approximately 10% as the exchange rate of dollar against rupee was Rs 108.46 on
December 12, 2013 and Rs 97 on April-2014.

So that the exporters were striving hard to retain their share in the global
market just at 4 to 5 percent of margin of net profit, adding that the strengthening
rupee value will left them ‘ruined’. The rupee value grew during November and
December last year which is always a peak booking period for the exporters to
strike deals with foreign buyers for next summer season.

On the other hand exporters are also facing GST refund problem as GST refund
cases are pending from a long time and some are 24-30 months old I these
circumstances exchange rate specially Rupee appreciation will affect the
country’s export which should be a major contributor of foreign exchange




Insaf Research Team (IRT)

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Foreign Remittance Trend: Remittances in Pakistan decreased to 3863
USD Million in the fourth quarter of 2013 from 3927 USD Million in the third quarter of
2013. Remittances in Pakistan is reported by the State Bank of Pakistan.
Remittances in Pakistan averaged 2031.91 USD Million from 2002 until 2013,
reaching an all-time high of 3927 USD Million in the third quarter of 2013 and a
record low of 906 USD Million in the third quarter of 2003

ACTUAL PREVIOUS HIGHEST LOWEST FORECAST DATES UNIT FREQUENCY

3863.00 3927.00 3927.00 906.00 4305.77 | 2014/06
2002 -
2013
USD
MILLION
QUARTERLY NSA


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Forex Reserve: Govt. is focusing on to rebuild forex reserve and this is based
on following sources:
1. IMF Loan of US$ 6.7 Billion

2. US$ 1.5 Billion suspicious funding from Saudi Arabia (Needs to clarify the
terms and conditions for this donation or conditional funding for Pak support
in Syria or to control the historical sectarian rival Iran? As the State Bank of
Pakistan remains tightlipped over the source and purpose of funding,
Pakistan received another tranche of $750 million in the newly-established
Pakistan Development Fund (PDF), taking the total contribution to $1.5 billion
so far.
3. Coalition Support fund from USA
4. Overseas Pakistanis Remittances
5. Sale of 3G-4G Licenses at very low price as compare to the forecasted and
stated by the Finance minister we may keep the India’s example.
6. Privatization of national assets at throw away price

These are all the bubble boomers and could not be able to retain the
healthy numbers for long time and to hold the prosperous growth following the
standard economic growth fundamentals. On the other hand Government is

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ignoring the real economic factors to boost up the foreign Exchange reserves and
keep them on a healthy node:
1. Boost the Exports
2. Foreign Direct Investment
3. Change the energy mix to minimize the oil import bill to save the foreign
exchange


Impact on Common Man: The dilemma and worries of common man still
needs to be addressed on top level of Govt. as this rise and fall of Rupee not
supporting in boosting the economy and the economic situation of common man
in the country. Inflation is almost double in the month of March April as compare to
the previous year’s same months inflation



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The inflation rate in Pakistan was recorded at 8.53 percent in March of 2014.
Inflation Rate in Pakistan is reported by the Pakistan Bureau of Statistics.
Inflation Rate in Pakistan averaged 8.03 Percent from 1957 until 2014, reaching an
all-time high of 37.81 Percent in December of 1973 and a record low of -10.32
Percent in February of 1959.

Consumer Price Index: In Pakistan, most important categories in the
consumer price index are:
1. Food and non-alcoholic beverages (35 percent of total weight);
2. Housing, water, electricity, gas and fuels (29 percent)
3. Clothing and footwear (8 percent)
4. Transport (7 percent).
5. furnishings and household equipment (4 percent),
6. Education (4 percent),
7. Communication (3 percent)
8. Health (2 percent).

The remaining 8 percent is composed by: recreation and culture, restaurants
and hotels, alcoholic beverages and tobacco and other goods and services refer
to the graph below drastic rise in CPI from July-2014 to March-2014 and during this
period CPI touches its historical high as well.

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Even Govt. just given a peanut in fuel prices which less than 2% as compare
to the more than 10% decline in US$ par rupees parity. Govt. is already enjoying a
very high margin on oil sales as this is a major contributor to FBR revenue targets. As
for as the connection between US$ and the commodity and fuel prices is concern
in past three months US$ was deprecated approximately 10% as compare to its
historical high of Rs. 108/US$. But the prices of commodities are still showing rising
trend.

Fuel prices are directly affecting the prices of commodity basket and
current PMLN Govt. fails to prove its good governance in price control and

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defining the appropriate price mechanism for commodity basket which is directly
affecting the common man life patter.

Can Govt. explain why the price structure of fuel is still on higher side?? And
what corrective action Government can show to control the transport fare, which
is adding in all the consumable and non-consumable items. What steps Govt. has
taken to keep a watch full eye on the price structure of the imported goods prices,
Raw material for Cooking Oil and Ghee, Seeds and pesticides prices, foods and
consumable items imports?
Petroleum Prices Archive:
Date HOBC Premium HS Diesel LS Diesel Kerosene
Apr 01, 2014 Rs.136.57/Ltr Rs.108.31/Ltr Rs.113.85/Ltr Rs.95.06/Ltr Rs.101.15/Ltr
Mar 01, 2014 Rs.137.73/Ltr Rs.110.03/Ltr Rs.116.75/Ltr Rs.101.24/Ltr Rs.108/Ltr
Nov 01, 2013 Rs.137.73/Ltr Rs.112.76/Ltr Rs.116.75/Ltr Rs.101.24/Ltr Rs.108/Ltr
Oct 01, 2013 Rs.140.47/Ltr Rs.113.24/Ltr Rs.116.95/Ltr Rs.101.24/Ltr Rs.108.13/Ltr
Sep 01, 2013 Rs.138.33/Ltr Rs.109.14/Ltr Rs.112.26/Ltr Rs.98.43/Ltr Rs.105.99/Ltr
Aug 01, 2013 Rs.129.16/Ltr Rs.104.5/Ltr Rs.109.76/Ltr Rs.96.12/Ltr Rs.101.28/Ltr
Jul 01, 2013 Rs.126.77/Ltr Rs.101.77/Ltr Rs.106.76/Ltr Rs.92.17/Ltr Rs.96.29/Ltr
Jun 01, 2013 Rs.121.13/Ltr Rs.99.77/Ltr Rs.104.6/Ltr Rs.89.13/Ltr Rs.93.79/Ltr
May 01, 2013 Rs.123.57/Ltr Rs.97.59/Ltr Rs.106.06/Ltr Rs.89.06/Ltr Rs.94.17/Ltr


References / Source:
1) Economy Watch Pakistan: http://www.economywatch.com/world_economy/pakistan
2) Economy of Pakistan by SBP: http://www.sbp.org.pk/ecodata/index2.asp#monetary

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