Abbasi rules out further rupee devaluation
Islamabad – Prime Minister Shahid Khaqan Abbasi said his administration has “no plan” to weaken the rupee further after the central bank started devaluing the currency last week.
Since December 8 the rupee has dropped 4.3 percent to 109.875 per dollar as the State Bank of Pakistan allowed the currency to fall. The retreat makes the rupee the biggest decliner globally in that period, according to data compiled by Bloomberg.
The weaker rupee will have a minimal effect on the economy with an inflationary “impact probably of less than 0.5 percent’’, Abbasi told Bloomberg in a text message on Friday. He said the “market will decide” the rupee’s level and that the move will help address country’s deteriorating external position.
With elections looming in August, Pakistan has been hit by political instability and economic stress. The current account and trade deficits have widened as exports lag regional peers, while foreign-exchange reserves have dropped to less than half that of Bangladesh. That’s prompted investors, economists and the International Monetary Fund to call for the central bank to scrap its managed float. The rupee was Asia’s most-stable currency since 2014 until the recent weakness.
Pakistan sold $2.5 billion of dollar bonds last month and some analysts believe South Asia’s second-largest economy may need an IMF bailout. Shahid Mahmood, the secretary at the finance ministry, said the government has the option to raise funds by selling more global debt or seeking commercial loans from Chinese banks, instead of going to the IMF to bridge its financing gap.
“We are familiar with procedures so if we have to go to the market we can easily do that within 45 days,” Mahmood said in a phone interview on Friday.
The government would potentially raise a smaller amount than November’s sale and will watch the economic situation for two months before taking a decision, he said.
The World Bank estimated in October that $17 billion of external financing – or 5 percent to 6 percent of gross domestic product – is needed in the current financial year through June for Pakistan to bridge its debt payments and current account deficit, which more than doubled to $14.4 billion in the year through September. Foreign-currency reserves have slumped 29 percent to $12.9 billion in the year through October.