IRT US $ & ITS IMPACT ON ECONOMY OF PAK

FLUCTUATION OF US$ & ITS IMPACT ON THE

ECONOMY OF PAKISTAN

Researched & Compiled by

Insaf Research Team

[email protected]

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 1st April to 21st April

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

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


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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

IRT US $ & ITS IMPACT ON ECONOMY OF PAK

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