The Pakistani rupee on Thursday continued its free fall against the US dollar as it crossed the major psychological barrier of 200 mark (54.5 against the dirham) in the interbank market for the first time in the history of the country.
The local currency remained on a slippery path with a fresh decline of 0.81 per cent, or Rs1.7, against the greenback as it resumed trading from Wednesday’s closing at Rs198.39 and closed at Rs200. It remained under pressure throughout the day despite a suspected intervention from the State Bank of Pakistan as the demand was high in the market due to uncertainty on political and economic fronts.
The rupee sustained the downward trend on the ninth consecutive working day as it cumulatively lost 6.75 per cent, or Rs12.67, since May 9. The currency hit a record low of Rs187.53 (51.09 against the dirham) on May 9 and then plunged to Rs190.02 (51.77 against the dirham) on May 11.
The local currency remained under pressure and dropped to Rs192.53 (52.46 against the dirham) on May 13, sank below Rs194.19 (52.91 against the dirham) on May 16, declined to Rs198.40 (54.05 against the dirham) on May 18 and ended at Rs200.2 (54.55 against the dirham) on Thursday (May 19).
IMF talks resume in Doha
The latest development comes a day after Pakistan opened talks with IMF in Doha to revive the $6 billion extended fund facility, which has been on hold since ex-premier Imran Khan’s government was ousted in April. Since then, the rupee has lost value against the US dollar by 13 per cent.
The rupee depreciation continued despite the fact that talks with the International Monetary Fund (IMF) resumed in Doha on day to revive and extend the multi-billion dollar programme to help stabilise the Pakistan economy.
Analysts and market insiders said the talks with IMF are very crucial to restore the confidence of investors and other multinational lenders, but they expressed their doubt that the week-long negotiations are unlikely to conclude on positive note due to the government’s reluctance to withdraw subsidies on petrol, gas and electricity — a prerequisite condition from the IMF to revive the loan programme.
Rupee to stay under pressure
Muzammil Aslam, a Karachi-based senior economist, said political uncertainty followed by deadlock on IMF programme and foreign flows has further escalated the commodity super cycle concerns.
“Banks are not processing the importers letter or credit. Indecision by ongoing government and the continuity concern to the current government has shattered the confidence. Going forward, the fate of currency hangs on IMF negotiations. Till then the rupee to stay under pressure,” Aslam told Khaleej Times on Thursday.
Pakistan and the IMF originally signed the accord in 2019, but the release of a key installment had been on hold since earlier this year. Previous finance minister Shaukat Tarin held talks in March for the release of $1 billion tranche after completion of seventh review of the economy under the IMF’s plan.
Pakistan has secured more than 20 bailouts from the IMF in the past five decades. It completed the fund’s six reviews and drew $3 billion so far to support the country’s foreign exchange reserves, which dropped to $10.16 billion on May 13.
IMF package a must
Samiullah Tariq, head of research at Pak-Kuwait Investment Company, said the rupee is in a free fall against the US dollar and other major currencies due to uncertainty over IMF talks started today in Doha.
“Withdrawal of subsidies on petroleum products is an essential part of the IMF talks and it seems an uphill task to convince the fund’s officials and get a positive outcome without a firm plan to phase out subsidies on petrol and electricity,” Tariq told Khaleej Times on Thursday.
He said the revival of the IMF package is essential to meet external funding requirements as well as restore investors’ confidence on the Pakistan economy.
“No financial help from other multinational lenders and friendly nations is possible unless we conclude positive talks with the IMF,” Tariq said.
The rupee shed 27.07 per cent of its value against the US dollar since the beginning of financial year 2021-22. It ended at Rs157.54 (42.92 against the dirham) in previous year of 2020-21 on June 30.
Sources: State Bank of Pakistan and KT Research
Some currency dealers have blamed the outflow of dollars to neighbouring Afghanistan as reason for the decline.
Currency Exchange9 months ago