KARACHI: The rupee continued its downward march in search for a base for the second successive day on Thursday ahead of the International Monetary Fund’s (IMF) formal approval of the Extended Fund Facility of $6 billion for Pakistan next week.
The currency depreciated by a fresh Rs1.89 to Rs164.05 to the US dollar compared to Wednesday’s close at Rs162.16, the State Bank of Pakistan (SBP) reported. It has cumulatively dropped 4.50%, or Rs7.07, in the past two days. So far, it has weakened by a total of 35%, or Rs42.56, in the outgoing fiscal year ending June 30, 2019.
The IMF executive board is scheduled to meet next Wednesday (July 3) to consider and give final approval for the $6-billion loan for Islamabad.
The free fall of the rupee came since the government ended its control of the exchange rate under the IMF condition and let market forces – mostly banks – determine the rupee-dollar exchange rate keeping in view the demand and supply of the foreign currency.
Economic Advisory Council member Dr Ashfaque Hasan Khan, however, raised questions over the recently introduced market-based rupee-dollar exchange rate in Pakistan. “When the country is facing serious balance of payments crisis, how can you allow the currency exchange rate to be determined by market forces,” he said.
He urged the authorities to control the rupee and help the currency and economy stabilise to prevent Pakistan from facing a situation that Indonesia faced during the Asian financial crisis in 1997.
He said the poor economic situation of Pakistan at present was similar to the one that Indonesia faced in 1997. Moreover, Islamabad is making the same mistakes that pushed Jakarta towards the worst financial crisis in the late 1990s.
Indonesia had a balance of payments crisis similar to the one Islamabad is facing these days and left its currency rupiah at the mercy of market forces. “The strategy did not help Jakarta overcome the balance of payments crisis, but worsened it,” he remarked.
“If the central bank (SBP) governor believes that the exchange rate should be determined by market forces, then what is his job? Do we need a central bank governor if everything is decided by the market?”
On the other hand, prominent economist Kaiser Bengali said the government should immediately ban the import of non-essential items to overcome the balance of payments crisis. He was of the view that the IMF loan programme would destroy Pakistan’s economy.
Some other experts said the rupee came under pressure due to a wide gap between the demand and supply of dollar in the market.
The SBP’s foreign currency reserves decreased $322 million to $7.28 billion in the week ended June 21 “due to external debt servicing and other official payments,” the central bank said on Thursday.
Gold hits new high
The massive depreciation of the rupee pushed the gold pricing committee of the All Sindh Saraf and Jewellers Association (ASSJA) to increase the imported commodity’s price by Rs500 to a new all-time high at Rs81,500 per tola (11.66 grams) on Thursday.
In comparison to that, the yellow metal inched up $1 to $1,405 per ounce (31.10 grams) in the London market.
Published in The Express Tribune, June 28th, 2019.