ISLAMABAD - Pakistani currency is under severe pressure currently as US dollar surged to historic Rs 124.5 in the open market on Tuesday, increasing the volume of foreign debt.

The US dollar climbed to a new high of Rs 122 in the interbank market and reached historic Rs 124.5 in the open market. The dollar has gained by Rs 6.38 in the interbank market since June 8, 2018. Pak rupee dropped by 9.5 percent (5 percent in December 2017 and 4.5 percent in March 2018) to US dollar.

The local currency is under pressure due to depleting foreign exchange reserves which currently stand at $10 billion. The reserves are tumbling due to widening of current trade deficit and repayment of loans.

The country would have to repay $2.5 billion in next couple of months, which would further pressurise the reserves. The current account deficit widened to 5.3 per cent of the GDP (gross domestic product) or $14.035 billion in the first 10 months of the current fiscal year of 2018. The current trade deficit increased 50 percent from $ 9.354 billion in the corresponding period a year earlier.

Caretaker Finance Minister Dr Shamshad Akhtar had already hinted at further rupee depreciation. She had said managing the exchange rate through State Bank of Pakistan’s intervention was not the right way. “The market itself should be allowed to correct it,” she said at her maiden press conference last week. Similarly, the State Bank of Pakistan has also decided not to intervene in the market.

The rupee depreciation would help increase the country’s exports and control imports. “The previous rupee depreciation had helped increase exports by over 30 percent in May 2018 as compared to the corresponding period of last year. However, the pace of imports growth slowed down to 14 percent in May,” said an official of the ministry of commerce.

The business community has shown great concerns over the sharp devaluation of rupee against dollar as it would cause manifold increase in the foreign debt, enhance cost of production and unleash a new wave of inflation for the common man, making his life more miserable. It called upon the SBP and the caretaker government to take urgent remedial measures to end volatility and bring stability into the value of rupee.

“The falling value of rupee against dollar is indicative of a weak economy. Any further devaluation of rupee would create additional challenges for our fragile economy,” Sheikh Amir Waheed, president, Islamabad Chamber of Commerce and Industry (ICCI), said in a statement. He said the rise in inflation due to devaluation of rupee would curtail the purchasing power of people, leading to further slump in the business activities as growth of trade and industry depends on the purchasing power of the general public.

Sheikh Amir Waheed said the local industry was importing a lot of raw material for manufacturing various products and the devaluation of rupee would enhance cost of production, as a result of which the country’s exportable products would become more uncompetitive in the international market. He said Pakistan’s trade deficit during the first 11 months (July 17 to May 18) has swollen to around US $34 billion and the devaluation of rupee would further increase it, putting more pressure on the reserves of the country. Therefore, he called upon the SBP and the government to take urgent measures to stabilise the domestic currency.

Staff Reporter from Lahore adds: Financial market experts said the inter-bank market also marked the steep low during the day trading when commercial banks buy large volumes of US dollars on behalf of commercial importers.

The dollar gained strength by a further Rs0.62 against the rupee to touch its new high in money market, forex dealers said. The dollar has gained by almost Rs7 in the interbank market during last 10 days. This uncertain situation forced the currency dealers in open market to stop the sale of the foreign currencies.

It is to be noted the central bank is of the view that the market is in the trading phase. SBP spokesperson Abid Qamar has stated this is a free market where market forces determine the rupee’s value. He added central bank is not intervening.

Experts suggested that the overall policy framework should be strengthened and implemented otherwise Pakistan may face a default in its external transactions.

Noted economist Dr Hafeez Pasha said the new government will have to negotiate with the IMF, as it will not be in a position to repay the $6.2 billion loan to the international lender. There are three critical areas where deep reforms are required in the domain of trade, fiscal and monetary policies, he added.

LCCI standing committee on economic reforms chairman Kashif Anwar stated that the government must support export sector. He said instead of addressing structural issues, which would have attracted non-debt inflows, the government preferred to obtain expensive foreign loans for inflating its reserves which was now proving a costly choice.

Kashif Anwar said the current business models needed to be replaced with new and innovative ones in order to oversimplify the business culture and attract more locals to take risk of investing in every sector and laying down the foundation of powerful economy.

Pakistan Forex Association President Malik Bostan pointed out that renewed pressure on the rupee came in the wake of heavy additional demand for foreign currencies from Umrah pilgrims these days.

President Karachi Chamber of Commerce & Industry Muffasar Atta Malik, while expressing deep concern over continuous devaluation of rupee, said dollar has risen sharply which has to be controlled otherwise it will have a devastating impact on the already beleaguered economy.

He said the government recently devalued rupee for the third time in six months and rupee continues to fall against dollar, stoking concerns that the country may have to go to the IMF for a bailout.

“We fear that the rupee may fall further in the coming months keeping in view Pakistan’s dwindling foreign exchange reserves”, he said, adding such abrupt devaluations in the past brought economic distress, which lasted for several years.

 

 

Dollar hits Rs124.5 as rupee free-fall continues