Pakistani rupee hits fresh all-time low against US dollar

Downward trend is expected to continue in coming days.

By: Muzaffar Rizvi/Dubai

The Pakistani rupee hit an all-time low against the US dollar by plunging to Rs157 (42.70 against the UAE dirham) in the interbank market on Friday due to rising debt payments and dwindling foreign exchange reserves of the country.

The rupee shed another Rs4.10 against the greenback as traders and exporters rushed to exchange counters ahead of the weekend. It started the day at Rs152.90 and hit Dh157. In the open market, the currency dropped to 156.50.

In the last five working days, the rupee has lost Rs7.70 against the dollar and it is expected to remain under pressure in the coming weeks due to a free-float exchange rate system advised by the International Monetary Funds (IMF) to approve a $6 billion bailout package for Pakistan’s economy.

The currency, a worst performer in a basket of 13 currencies in Asia, lost almost 33 per cent of its value in the past 12 months, including a 28 per cent depreciation under the Imran Khan-led government, which assumed power in August 2018. The currency shed 9.05 per cent of its value this year after falling 37.05 per cent in 2018.

In a statement on Thursday, the State Bank of Pakistan (SBP) – the central bank – reported that its foreign exchange reserves dropped by $55 million to $7.80 billion due to payments on account of external debt servicing.

“The total liquid foreign exchange reserves held by the country stood at $14.83 billion on June 3, 2019. It includes $7.02 billion held by commercial banks of the country,” the SBP statement said.

Analysts and experts said that the rupee is expected to stabilise at Rs160-165 against the dollar (43.6-45.2 versus the dirham) by the end of this month. In a short-to-medium-term scenario, the currency is likely to touch Rs180 (49 versus the dirham) by the end of this year.

Citing the IMF’s conditions for a $6 billion package announced last month, they said the central bank has refrained to intervene in the market to rescue the rupee.

Dr Ashfaq Hassan Khan, member of the Economic Advisory Council that is headed by Khan, said it is surprising that the rupee continues its slide despite the IMF bailout package.

“The rupee’s unprecedented depreciation is killing businesses in Pakistan as it hurts confidence of traders, investors and businessmen in the country. It added another Rs770 billion to the country’s external debt in the past one week,” he said.

To a question on when the rupee would become stable, he said it is very difficult to predict the outlook.

“It is a million-dollar question to exactly forecast the future of the Pakistani rupee,” Dr Khan told Khaleej Times from his Islamabad office on Friday.

Muzzammil Aslam, senior economist and former CEO of EFG-Hermes Pakistan, said the extended Eid holidays had compiled a huge import bill backlog and a rough estimate suggests over $1 billion was in queue for clearance, while remittance flows tapered off after the Eid period.

“The mismatch between the exports and imports dues, coupled with the absence of SBP intervention, has weakened the rupee against the US dollar. The adjustment is trade-related, not due to dollarisation,” Aslam told Khaleej Timeson Friday.

“As we witnessed in May, the exchange rate moved both sides; we expect a similar trend from now,” he added.

In budget speech on Tuesday, Minister of State for Revenue Hammad Azhar said Pakistan witnessed a $20 billion current account deficit while the trade deficit touched $32 billion in the outgoing fiscal year.

Latest data released by the Pakistan Bureau of Statistics showed that the trade deficit declined by 12.8 per cent during the July-April 2019 period due to a significant decrease of 7.9 per cent in imports. In April 2019, the deficit recorded a 9.9 per cent decline primarily because of a 6.4 per cent decrease in imports.

Experts and market insiders said the currency might receive temporary relief or support next week when the IMF executive board is expected to approve the $6 billion package for Pakistan.

“The IMF package announcement may bring some stability in the market and restore investor trust in the Pakistan economy,” they said.

Dr Abdul Hafeez Shaikh, adviser to the prime minister on finance, said at the post-budget press conference on Wednesday that the IMF executive board would approve the loan in two to four weeks.

“The rupee would start stabilising after IMF inflows begins next month as it will ensure fresh supply of dollars into the market. Moreover, Pakistan is also expected to get the $3.2 billion oil deferred payment facility from Saudi Arabia in July that would also ease pressure on external payments,” analysts said.

Categories: Economy & Bussines,Pakistan

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