Pakistan rupee falls to 35.67 against dirham, may hit 40 in short term

Dubai - This is the country's fifth currency devaluation since December last year.

The Pakistani rupee on Tuesday was unofficially devalued by 7 per cent, plunging to an all-time low of 35.67 against the dirham, and is expected to decline further in the coming weeks due to a balance of payment crisis, and to fall in line with the strict conditions laid down by the IMF ahead of the $7 billion bailout talks.

It was the fifth unofficial devaluation of the rupee by Islamabad since December 2017. The previous devaluations were in the range of five per cent.

Vijay Valecha, chief market analysis, Century Financial, predicted that the rupee will touch 40 against UAE dirham in the short term.

“News of IMF bailout has set off a sharp fall in the value of rupee to Rs134 against US dollar. Local news reports from Pakistan suggest that currency was intentionally weakened to fall in line with the strict conditions laid down by IMF.  It is popular wisdom that IMF is not easy institution to deal with, especially when under financial distress. The current crisis in Pakistan has been triggered by a balance of payment crisis and inadequate foreign exchange reserves to pay for imports,” Valecha said.

With global economy slowing down and countries across the world erecting trade barriers, Valecha says it is highly unlikely that exports from Pakistan will have a sharp turnaround. Hence, the downtrend in currency is likely to continue and dirham could fetch 40 against the rupee in the short term.

Rajiv Raipancholia, CEO, Orient Exchange, expects rupee to drop further to 136 against US dollar or 37 against dirham in coming days.

Even if IMF and Islamabad agreed on bailout, but it will take some time for other terms to materialize, so rupee can touch even 140 against dollar or 38.15 against dirham.

“An assessment by the State Bank of Pakistan and the finance ministry showed that Pakistan needed $11.7 billion to service its external debt in current fiscal year 2018-19. Borrowing from Gulf countries and non-resident Pakistanis through special bonds are other sources available for the government,” Raipancholia suggested.

Abid Qamar, a spokesman at State Bank of Pakistan, said the market knows the macroeconomic conditions and based on those, they are having their own expectations for the exchange rate.

Some analysts have reportedly said that Islamabad will need approximately $9 billion to stabilise currency and overcome balance of payment issue. Pakistan's fiscal deficit was on target to hit 7.2 per cent of GDP in the fiscal year ending in June 2019, but the government has introduced measures to bring it closer to 5 per cent.

Jameel Ahmad, global head of Currency Strategy & Market Research at FXTM, said by all accounts, situation for rupee could get much worse before it gets better.

“I hope that the Pakistani market doesn't encounter the same weakness seen in the Turkish lira and Argentine peso over the past few months. The advantage to a bleak situation when it comes to finances in Pakistan is that investors are not that surprised of reports that it will request a bailout from the IMF. It also isn't that new of a situation for Pakistan, when you consider that it has on multiple occasions in the past requested help from the IMF,” said Ahmad.

Downside to this situation, he said, is that the request for a bailout will more likely than not ensure that the Pakistani rupee remains at very weak levels.

waheedabbas@khaleejtimes.com

• Pakistan