Pakistani currency dropped to the much-feared level of Rs200 against the US dollar at a point in time in the inter-bank market on Wednesday but partly recovered towards the close of market.
It hit an all-time intra-day low at Rs199.61, according to market sources. However, the currency closed at Rs198.39, recording a fresh day-to-day depreciation of 1.34% (or Rs2.65) compared to Tuesday’s close at Rs195.74 against the greenback, according to the State Bank of Pakistan (SBP).
The latest depreciation comes amid the resumption of talks between the government and the International Monetary Fund (IMF) for the revival of the stalled multibillion-dollar loan programme.
“The reason for the current rupee depreciation is the risk of default,” Pak-Kuwait Investment Company Head of Research Samiullah Tariq said on his official Twitter handle.
The default risk measured by Pakistan’s Currency Default Swap (CDS) hit a 14-year high at 16% compared to the usual 6-8% when the economy stood stable.
“The current depreciation is due to uncertainty about the gross external financing (approximately) north of $30 billion per annum as reflected in our Eurobond yields. They’re at the highest level (around 15%).”
He did not agree with some of the analysts who said the latest round of rupee depreciation was due to the widening current account deficit (CAD). “We had a $2.5 billion CAD during January 2022, but bond yields didn’t move. Last month, our CAD was $1 billion but yields went crazy.”
The rupee has maintained its downturn for the ninth consecutive working day, as it cumulatively lost 7% of value (or Rs12.70).
Importers have continued panic buying of dollars on the assumption that the IMF may not resume the loan programme after the government showed reluctance to meet the required conditions.
Finance Minister Miftah Ismail said on Sunday that they would try to convince the IMF to soften its conditions.
The IMF has asked the government to withdraw subsidies on petroleum products and electricity.
Experts believe that the country badly needs the IMF programme to avoid the increasing risk of default on international payments including import payments and foreign debt repayment.
The country’s foreign exchange reserves have depleted to the critically low level of $10.3 billion, which covers just six weeks of imports compared to the usual three-month import cover.
Exporters delayed the receipt of payments from foreign buyers, anticipating the rupee may touch the Rs200 level soon.
Published in The Express Tribune, May 19th, 2022.
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