KARACHI: “If you have to determine a level where the rupee might settle against the US dollar, 150 is a very easy target you can see in the next six months,” remarked Alfalah GHP Chief Executive Maheen Rahman.
She was addressing a seminar on “Pakistan’s Economy: Yet Another New Start” at the IBA ThinkFest on Saturday.
Rahman said that there is no real level that can be fixed for the Pakistani currency, which has depreciated nearly 31% in the past 11 months.
The International Monetary Fund (IMF) has recently proposed that Pakistan let its currency depreciate to Rs145-150 to the US dollar during talks with the newly installed Pakistan Tehreek-e-Insaf (PTI) government which is seeking a bailout package of $6-12 billion.
Elaborating, she said that the dollar should go up or down annually, which is not a problem. “If there is 5% depreciation in the rupee on an annual basis, it is something that the economy can absorb and adjust.”
However, in the past five to six years, the rupee was held artificially at one level and not allowed to find its true value. Due to this, pressure continued to mount, which is why now there are sudden sharp movements. There should be a gradual movement in the rupee in line with what the dynamics are and that is how overall exchange rate should be managed, she added.
Talking about the tumultuous year for the economy, which has witnessed several rounds of rupee depreciation and hike in interest rate to a six-year high of 10%, Rahman said that although the worst is not over yet, “we are very close to the end of this cycle”.
Responding to a question on whether the government would go to the IMF for a bailout, the panellist said, “It is going to go to end up at a point where we don’t have a choice. The requirement for funding is there, which is a very deep requirement.”
Speaking to the media recently, Finance Minister Asad Umar said that the balance of payments crisis is over for now and the financing gap for the current fiscal year has been plugged.
Commenting on the finance minister’s statement, Rahman said, “If he has plugged that (financing gap), it should be apparent in the economic indicators.”
She remarked that had the gap been plugged, the foreign exchange reserves would not have fallen by $500 million and the rupee would not have faced such volatile fluctuations. Speaking on the occasion, Arif Habib Consultancy Chief Executive Nasim Beg said capital markets are confused as there is a lack of clarity on what direction the economy will take.
“We don’t know whether we will get the money from the IMF. We don’t know if the government wants to go the IMF.”
Beg said that there is a need to arrest the plunging foreign exchange reserves, adding that there is a political agenda in relation to the IMF package and talks are underway behind the scenes.
Earlier, there were statements from US Secretary of State Mike Pompeo that IMF loans should not be used to pay off Chinese debt. Later, a US Treasury official stated that Pakistan is likely to pay off an IMF bailout before its loans from China come due, easing concerns that IMF funds will be used to pay back Chinese creditors.
Addressing structural problems in the economy, Beg said Pakistan is an import-dependent economy and its exports base is very narrow.
Adding to this, Rahman said that having a high import bill is not necessarily bad, but “we need to address the issue of exports by increasing the manufacturing base, which will allow them to grow at a faster pace.”
Published in The Express Tribune, December 9th, 2018.