Pakistan’s rupee has performed well these last few weeks, so well that it was ranked as South Asia’s best-performing currency for November. The highlight was on Wednesday where it closed at 158.49 per dollar, gaining about 6 percent since reaching a low of 168.44 on August 26. It has been ranked third in Asia’s best-performing currencies after appreciating by 3.1 percent against the US dollar since the start of October.
What can this high be attributed to? The answer comes back to the current account and foreign exchange reserves. Yes, the currency has performed well because the current account is in a better position than before—yet all is not as simple or well as it looks.
The current account has become more balanced mainly because of two factors—a rise in remittances and an increase in exports. However, before the government becomes too comfortable with what are positive developments, it also needs to research why remittances and exports have improved, and more importantly, whether this is a consistent phenomenon or a one-time lucky break. A substantial reason for the rise in remittances is the pandemic—due to lockdowns in countries where the bulk of our remittance income is sourced, many people have no option but to use official channels to send remittances, which has brought them into the official data. The increase in remittances could also be chalked down to job losses and the effects of the pandemic being felt more harshly in third world countries. The government, however, deserves credit for clamping down on unofficial channels of transfers remittances and bringing in more remitters into the network. Exports during July-September 2020 were 912,579 million rupees, showing a rise of 5 percent though in dollar terms.
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Whether the rupee performing well was due to the pandemic or not, it must now be the government’s prerogative to use this success to stabilise the currency. It was the right decision to have a floating exchange rate—after a year of harsh conditions of the currency, the government must continue its initiative to ensure that the trade environment remains stable.
Source: https://nation.com.pk/16-Nov-2020/a-strengthening-rupee