Pakistani rupee hits new all-time low against UAE dirham; will it fall further?

The Pakistani rupee's free-fall continued on Wednesday, plunging below an all-time low of 61 against the UAE dirham due to political turmoil in the South Asian country.

The rupee has been consistently sliding since the ouster of the Imran Khan-led Pakistan Tehreek-e-Insaaf government on April 10 this year, falling nearly 20 per cent. The rupee has lost 40.2 per cent against the UAE dirham in the past year, according to xe.com.

Pakistan's finance minister Miftah Ismail has also blamed political turmoil in the country for the plunge in the rupee's value.

"The panic in the market is primarily due to political turmoil, which will subside in a few days," Ismail told Reuters.

As a result of political instability, the country's economy has been sinking and inflation skyrocketing.

Pakistan reached a deal with the International Monetary Fund for a $1.2 billion loan, which temporarily eased pressure on the rupee.

"Pakistan is at a challenging economic juncture. A difficult external environment combined with procyclical domestic policies fueled domestic demand to unsustainable levels. The resultant economic overheating led to large fiscal and external deficits in FY22, contributing to rising inflation, and eroded reserve buffers," the Fund said.

Rupee to remain under pressure

Though the IMF deal is being seen as a credit positive for the country, analysts see it as a short-term relief for the economy and the currency.

Analysts expect the rupee to remain under pressure until there is political stability and clarity about the government.

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Global rating agency Fitch earlier this week revised Pakistan's outlook from stable to negative, reflecting a significant deterioration in Pakistan's external liquidity position and financing conditions since early 2022.

"We assume IMF board approval of Pakistan's new staff-level agreement with the IMF, but see considerable risks to its implementation and to continued access to financing after the programme's expiry in June 2023 in a tough economic and political climate," said Fitch.

- waheedabbas@khaleejtimes.com

• Pakistan