Pakistan Economic Crisis: Pakistan, which is seeking bailout from the International Monetary Fund (IMF) for the ninth time, has failed to control the depreciating value of its currency (Pakistani Rupee), which stood at Rs 262 against the dollar on Friday. According to analysts, the country is on the verge of economic collapse as it grapples with massive power cuts, facing severe shortages of basic food supplies, especially wheat, among other commodities.
Cash-strapped Pakistan’s currency slumped to its lowest level at Rs 262.6 against the US dollar in the interbank and open market yesterday.
At one stage the currency fell as low as Rs 265 in the open market and Rs 266 at the interbank before making a marginal correction by the end of the day.
According to the State Bank of Pakistan, when the market opened on Friday, the currency declined by Rs 7.17, or 2.73 per cent, from Thursday’s closing price.
The Pakistani rupee has depreciated by Rs 34 since Thursday at the interbank, the biggest depreciation in both absolute and percentage terms since the introduction of the new exchange rate system in 1999.
The Pakistani rupee depreciated sharply after the government removed an informal cap on the USD-PKR exchange rate in a bid to revive the stalled International Monetary Fund (IMF) loan programme.
The government’s decision came after exchange companies on Thursday announced removal of self-imposed rate cap in the open market.
The country needs to complete the ninth review of the USD 7 billion IMF programme, which would not only disburse USD 1.2 billion, but also unlock flows from friendly countries and other multilateral lenders.
The IMF’s conditions include market-based dollar-rupee exchange parity and higher interest rates and the imposition of a 17 per cent general sales tax on diesel and petrol within a week. The first two conditions are already met.
A substantial amount of remittances started flowing into the country through official channels on Friday, according to data provided by the Exchange Companies Association of Pakistan (Ecap).
Hameed Khokar, a financial analyst with CX Investments, expects an increase in remittance flows in the coming days and feels that it will cross USD 2.5 billion per month in the coming months and gradually reach USD 3 billion. Will get close
He said that the export earnings will also improve in the next few months.
Khokar said the biggest challenge before the government is to support foreign reserves and improve the currency market so that currency parity is stable and import goods remain stuck at ports.
Over 9,000 containers are also stranded at Karachi ports awaiting payment for essential commodities, petroleum products, LNG and soyabean among other dues.
Other financial analysts have also supported the government’s decision to remove the cap on the dollar and feel that if it had been done earlier, the country would not have had to pay a heavy price of inflation in the coming months and 6 billion in various cases. Don’t have to bear the loss of US Dollars.
Saad bin Naseer, director of financial data and analytics portal Mettis Global, also said remittance flows, including export earnings, had started coming back through official channels after the cap was lifted.
Zafar Paracha, secretary general of eCAP, said that although the central bank had assured that dollars would be supplied to exchange companies, they were yet to receive them.
He added that if supply gets established and the government’s “complicated” policies are rectified, the rupee’s devaluation can be stopped.
Meanwhile, the central bank’s forex reserves continued to decline and fell to a nine-year low of $3.678 billion during the week ended January 20.
SBP said on Thursday that its foreign exchange holdings decreased by $ 923 million during the week due to foreign loan repayments.
But financial analysts are confident that with Prime Minister Shahbaz Sharif’s confirmation that the government will implement all the IMF’s conditions for its revival programme, the economic situation will improve.
Prime Minister Shahbaz Sharif expressed confidence on Friday that the IMF would release the funds by next month. He said the government is in talks with the IMF to resolve the issue at the earliest.
,With inputs from IANS,
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