Rupee drops to two-week low of 200.51 against USD

Sudden slump comes amid global rise in fuel prices

KARACHI:

The Pakistani rupee on Monday slumped 1.30% (or Rs2.59) to a two-week low of Rs200.51 against the US dollar at around 1:45pm in the inter-bank market on Monday marking another significant drop for a single day.

The rupee had closed at Rs197.92 against the greenback on Friday, according to the central bank.

"This is a cause of concern," Taurus Securities Head of Research Mustafa Mustansir said while talking to The Express Tribune.

"The drop is seen following the prices of petroleum products hovering high above $120 per barrel in the global markets, as Pakistan heavily relies on imported energy" he added.

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The analyst said budget uncertainties have mounted pressure on the rupee."IMF would consider resuming its loan programme after seeing whether Pakistan has implemented prerequisite commitments in the budget," Mustansir said.

The government is expected to make financial adjustments worth Rs2 trillion in the upcoming budget through cutting expenditures and increasing tax revenues, he added.

Experts said the resumption of the IMF programme is a must to stabilize foreign exchange reserves and avoid worsening the balance of payment crisis.

The reserves have depleted by over $7 billion in the past six-month to a critically low level of a mere six-week import cover at $9.72 billion.

Earlier, the IMF said that “Pakistan needs to take wide-ranging steps to repair macroeconomic stability”, indicating that the revival of the programme would not be a cakewalk despite the government's decision to increase fuel prices by 25%.

“The set of policies and reforms to repair macroeconomic stability is wide-ranging,” said Esther Pervez, the Resident Representative of the IMF, while responding to a question sent by The Express Tribune last week.

She singled out the withdrawal of fuel and energy subsidies and the fiscal year 2022-23 budget as areas that need to be addressed for “repairing” the damaged economy and achieving the Extended Fund Facility (EFF) programme objectives.

Pakistan had informed the IMF that any budget made on the assumption of achieving the primary budget balance would be unrealistic and would result in starting the new fiscal year on a wrong footing, said the sources.

Under the 2019 Extended Fund Facility, the IMF’s key goal is the primary budget target, which in present circumstances can only be achieved through a combination of development expenditure cuts and enhancing revenue collection.

Another programme objective is continued implementation of market based exchange rate. The rupee is now trading at its one of the lowest value of Rs198.5 to a dollar.