Experts foresee new wave of inflation as rupee crosses 200 to the dollar

ISLAMABAD: Experts are foreseeing a new wave of inflation after the US dollar touched an all-time high against the rupee by zooming past 200.

According to the Forex Association of Pakistan, the dollar traded at Rs200.60 on Monday, continuing its upward trend after crossing the 200 mark on Thursday.

The experts believed that multiple factors including the government’s failure to secure a bailout package from the International Monetary Fund (IMF), subsidy on fuel, surging imports, and falling exports are the main causes of the depreciation of the local currency against the dollar.

In a conversation with Xinhua, Syed Shujaat Ahmed, an economist with an Islamabad-based think-tank Sustainable Development Policy Institute (SDPI), said that Pakistan has a debt-driven economy with a huge problem of trade deficit.

“Pakistan’s imports are way more than its exports. The rising dollar rate means more inflation as many major necessities ranging from essential edibles to fuel and even raw materials for exports are imported from other countries. With a surging exchange rate their prices in local markets will surge,” he added.

According to the Pakistan Bureau of Statistics, total exports during the first eight months of the fiscal year of 2022 accounted for $28.855 billion, whereas it imported goods and services worth $62.131 billion during the same period.

He added that the purchasing power of the people is already getting weaker due to inflation caused by evolving regional situations, pandemic, and other factors. The price hike in basic commodities due to the devaluation of the local currency will further aggravate the situation.

Sajid Amin Javed, deputy executive director with the SDPI, believes that the devaluation of the currency may also give an excuse to local middlemen to hike the prices of essential edibles for the public.

“There is a practice in the country that when the dollar rate increases, a rise in prices is witnessed, even the sectors which are not directly affected by it. It may happen this time with the dollar crossing the mark of Rs200.”

Pakistan is also facing a serious challenge in its foreign exchange reserves, which fell by $115 million at the end of April, due to surging external debt payments and a higher current account deficit, official figures from the central bank showed.

Javed added that the situation of the local currency would get better after the country is able to secure a deal with the IMF, and then other money lending agencies including the ADB (Asian Development Bank) and the World Bank, and friendly countries may also step in to help overcome the country’s current account deficit and foreign exchange reserves challenge.

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