The rupee continued its free fall against the US dollar in the inter-bank market on 10th consecutive working day on Thursday, closing for the first time ever at 200 to a dollar amid warning from experts that the current slide in the value of the Pakistan currency might not stop there.
The rupee slumped 0.80% or Rs1.61 to hit a new all-time low of Rs200 to a dollar and a further drop may not be ruled out considering the “country is gradually moving towards a default-like situation”, currency dealers said.
The Pakistani currency had closed at Rs198.39 on Wednesday, according to the central bank. The dealers said that cumulatively, in the past 10 days, the rupee has depreciated 7.70% or Rs14.31 against the dollar.
The rupee fall on Thursday came on the second-day of the government’s talks with the International Monetary Fund (IMF) in Doha for the resumption of the multibillion dollar loan programme.
“The latest depreciation has raised red flag over the fast deterioration in the country’s balance of international payment crisis,” Tahir Abbas, the head of research at the Arif Habib Limited (AHL), told The Express Tribune.
Pakistan needs over $7 billion to repay the foreign debt and finance the current account deficit over the next months. On the contrary, the country’s foreign exchange reserves have dropped to a critical low level of less than six weeks of import cover at $10.3 billion.
“Where would the country’s foreign exchange reserves stand after making such international payments, while there are only outflows and no inflows at present,” Abbas said, adding that the yields on Pakistan’s Eurobond, maturing in 2024, shot to a historical high of 21% on Thursday.
“This suggests the country risk of default has shot to a very serious level,” he said. The prevailing yields suggested the value of Eurobond has lost next to nil. The yields used to hover around 6-8% in the days of economic stability in the country, he added.
The grim depreciation in the rupee value was recorded despite the Pakistan Muslim League-Nawaz (PML-N) government taking measures to cut import bill through banning dozens of non-essential and luxury items, claiming that the measure would reduce import bill.
However, Abbas said that the cut in the import bill was not the immediate solution to the worsening balance of payment crisis. The analyst estimated that the import bill would reduce the monthly import by only $200-250 million, contrary to the government’s calculation for $500 million.
“We need to resume IMF loan programme immediately to address the prevailing issue,” he said. “We immediately need new inflows that would come from IMF,” he said, adding that the resumption of IMF programme would encourage friendly countries to announce fresh bailout packages and enable the government to acquire more from the global capital markets and international commercial banks.
The government, however, remained reluctant to fulfil the IMF’s condition of withdrawal of subsidies on petroleum products and the electricity tariff to revive the stalled loan programme. Finance Minister Miftah Ismail had said the other day that he would try that the IMF agreed to soften its conditions for resumption of the loan programme.
The passing on of the increase in international oil price to domestic end-consumers would significantly cut the energy import bill and reduce the overall import bill in a more meaningful way. “The share of energy imports stands at around 25% of the total import bill.”
Comments are moderated and generally will be posted if they are on-topic and not abusive.
For more information, please see our Comments FAQ