The SBP was required to adjust its forecast for the deficit in the current account from 2 to 3 percent to 4 percent GDP.
Islamabad: The Turkish Lira exchange rate against the US dollar has made a dramatic overnight recovery and increased nearly 40 percent. However, this exchange rate saw has a steady decline within Pakistan against the US dollar over the last few months.
Despite claims made by Pakistan’s economic officers that exchange rates will fluctuate in two directions, however, the rupee has been declining relative to dollars. The rupee was depreciated by USD 152 to around Rs180 over the past few months.
There have been worrying developments in remittances that saw an unfavorable growth of $2.35 billion for November 2021 compared to $2.51 billion for October 2021. This was a decrease of 7 percent.
The Turkish Lira has made a significant rebound overnight, just that President Erdogan unveiled a brand new financial system to help strengthen the currency that is slipping. In just a matter of 24 hours, the Lira has increased by over thirty percent over the US dollar, the largest gain since 1983, according to Turkey’s news company TRT World in its tweet.
The following morning the exchange rate between dollars and Lira fell to 11.2248 at 9.30 at local time (0630GMT) after rising by almost 40 percent over the dollar since Monday evening.
On Monday, Turkish President Tayyip Erdogan announced that the new system would permit potential investors in foreign currencies to achieve the same outcomes while staying with the Lira. Erdogan declared that the series of measures would reduce the burden of the currency crisis of the last few weeks and will encourage Turks to keep Lira savings instead of dollars. The new measures come from the inflationary prices and rising exchange rates as the government tries to implement their “new economic model,” which emphasizes the opposition to high-interest rates.
In the instance of Pakistan in the past, the country received remittances of $29.4 billion during the fiscal year 2020-21, compared to $23.3 billion in the previous fiscal year 2019-20. This indicates that the country received additional payments of about $6 billion following the emergence of the Covid-19 pandemic. However, if the remittances fell dramatically, mostly due to the growing gap between the interbank rate and the open market rates, the incentive for Hundi/Hawala may increase dramatically.
The surge in remittances that reached a peak of more than $29 billion over the fiscal year saved Pakistan from a Balance of Payment (BoP) crisis in an enormous way. Remittances saw a huge rise in the wake of the Covid-19, a pandemic that imposed restrictions on travel overseas. Therefore, people living abroad, Pakistanis, especially those in Europe, could return their savings to save Pakistan from any major crises.
The country’s remittances dropped to 6.6 percent in November 2021, but they increased by more than 10 percent during the initial 5 months (July-Nov) duration of FY21’s fiscal year. In July-November in 2021-22, payments increased in value by 9.7pc to $12.9 billion, compared to $11.7 billion during the same time frame of FY21. Remittances from European countries jumped up to 41 percent, or $1.442 billion in the 5 months in FY22 compared to $1.02 billion during the same period in the previous fiscal year.
The next challenge is that lies ahead because there is a challenge ahead as the deficit in current accounts already exceeded $7.1 billion during the five months (July-Nov) timeframe of the fiscal year that is currently in effect, primarily because of the rising cost of imports that are growing at a rapid pace. The current account deficit is increasing; it was $1.7 billion in October 2021, but it grew to $1.9 billion by November 2021. This deficit was $773 million in July, $1.473 billion during August. $1.113 Billion in September, $1.76 billion in October, and $1.908 billion in November 2021.
The SBP was required to adjust its forecast for the deficit in current accounts between 2-3% of GDP and 4 percent.
Mohammad Sohail, Topline Security analyst, upon being contacted when he was contacted, informed The News that volatility and the increasing spread between official and open market could affect the inward transfer of funds. In actuality, the open market is currently offering two rates at present. Rates without documentation are higher, he claimed. When asked about how it would affect remittances in the current fiscal year, He said it is difficult to quantify. However, in the past, when we’ve seen an increased spread between open and official market rates, it led to money being transferred through unofficial channels.
Fahad Rauf, the Head of Research, Ismail Iqbal Securities, said that Bangladesh received more than $29 billion in remittances, mostly due to the Covid-19 pandemic due to travel restrictions. It is hoped that the country would receive remittances in the range of $27-$28 billion in this fiscal year. He stated that Bangladesh had made corrections to its payments, and remittances decreased in November 2021 compared to October 2021. He claimed that SBP received approximately $3 billion from its Roshan Digital Accounts, which means it offered other options for foreign Pakistanis to invest their funds. He also said it was quite surprising that exchanges were changing since, unlike those in the EU, the country was receiving substantial transfer payments.
Tahir Abbas Arif Habib Securities analyst told me that some stifling actions against Hundi/Hawala were in place. He also said that there are many reasons for decreasing remittances for November 20, 2021. Abbas said it was possible that Pakistan may receive money up to $30 billion in the fiscal year currently in session; however, there was a continual need to be vigilant in the prevention of remittances being diverted to unofficial channels.
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