The Pakistani Rupee has hit a 13-month high at Rs156.99 against the US dollar in the interbank market on Monday.
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The major determinant has been the positive capital flow, meaning that the inflows have remained higher than the outflows. Due to high inflows, the foreign reserves have remained stable at a year high of $13 billion increasing the government’s capacity to make international payments on imports and foreign debt repayment counters.
Over the last seven months, the currency has made a recovery of 7 percent from an all-time low of 167.43 on 26th August last year to 156.99 on Monday. The Rs. 11.44 appreciation came after the currency gained Rs. 0.14 on Monday.
Since the pandemic has hit the world, the inflow of foreign currencies has improved for Pakistan. This can be attributed to increasing remittances during this time. Credit-rating company Moody has acknowledged that the growth in Pakistan’s remittances is contrary to the World Bank’s forecast of a sharp decline in global remittances as well as its own expectation that the pandemic would keep remittances flat.
The data from the State Bank of Pakistan showed that remittances remained above $2 billion for the 9th consecutive month, with a 24 percent YoY increase. The country-wise data from State Bank suggests that the largest shareholder is Saudi Arabia, followed by UAE, UK, Other GCC countries, EU, and the USA in that order.
Research suggests that the major determinant for an increase in the remittances from GCC is a hindrance in Hundi and Hawala due to travel restrictions, including restricted Umrah and Hajj, leading to people choosing to send money by official channels.
The inflows through the new initiative of State Bank called Roshan Digital Account (RDA) have continued to grow. Overseas Pakistanis have opened more than 100,000 accounts in local banks under RDA during the first six months, State Bank of Pakistan (SBP) updated on March 12th, via their Twitter handle.
It has been also said that the recent reports of rollover by UAE on the $1 billion on the $2 billion loans they gave Pakistan in 2018 have assured the people the country will be avoiding defaulting.
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Moreover, the reports of an increase in garment export to the USA by 12% at the start of the year compared to other exporters has led to the confidence of investors in the economy, increase in the demand for the Rupee in the international market.