Not out of the woods yet

Depreciation in rupee is much worse than 20-year average decline and IMF says it should be devalued further.


Editorial February 13, 2013
PHOTO: FILE

The rupee had an inauspicious start to the week. It touched an all-time low against the US dollar on January 11 and traded at 100:1 to the greenback in the open market. The fall was triggered more by fear than anything else, about the strength of forex reserves as the country repaid $146 million to the International Monetary Fund (IMF). The worst, however, is not over yet.

So far, Pakistan has repaid $2.57 billion — including the $145.79 million payment on January 11 and is scheduled to repay another $375 million on February 26.

According to the State Bank of Pakistan, foreign exchange reserves have declined to $8.7 billion as of January 31 from $10.8 billion at the end-June 2012. The IMF has also said that foreign exchange reserves under $10 billion were below adequate levels.

The rupee has recovered slightly from its dip below 100 but it is going to stay under pressure for the foreseeable future and may even set a new record low. The only saving grace is that overseas Pakistani workers have so far remitted $8.21 billion in the ongoing fiscal year, a growth of 10.4 per cent year-on-year. But even this has not been able to save forex reserves from dwindling and registering a 20 per cent decline this year.



The mood of the State Bank of Pakistan, as deduced from the Monetary Policy announcement, is that it won’t be as willing to pump liquidity into the market to prop up the rupee as it has been up till now.

As it is, the fiscal year, so far, has been the worst in a long time. Pakistan rupee depreciation, which fell by 7.8 per cent in 2012 against the US dollar, is higher than most of its peers in the region, as the Indian rupee is down 3.7 per cent against the dollar, while the Bangladeshi taka gained by 1.8 per cent.

The depreciation in the rupee is much worse than the 20-year average decline of 6.2 per cent and the 10-year decline of 3.2 per cent.

There is also pressure from the IMF to devalue the rupee further, saying that it is still over-valued by about five per cent. If the government gives in to that theory, assuming it wants to do whatever is necessary to bring the Fund to the negotiating table, the worst is far from over.

Published in The Express Tribune, February 14th, 2013.

COMMENTS (9)

rehmat | 11 years ago | Reply

@John the Baptist: You have changed your moniker from Sultan to John the BAptist. But the quality of your arguments stinks as much as before. Attack everyone without saying what you disagree with - their facts or logic.

fyi- Asad Umer respects Meekal saab enough to consult him and take his advice onboard. When is the last time, he consulted you for your common sense?

John the Baptist | 11 years ago | Reply

@meekal a ahmed:

Mr. Economist with Super Ego, everyday Pakistani does not buy food items, fuel, etc. with REER; it uses the plain old Rupee, which is declining in value. Perhaps it is time we get rid of the one handed, useless economists and use some common sense!

VIEW MORE COMMENTS
Replying to X

Comments are moderated and generally will be posted if they are on-topic and not abusive.

For more information, please see our Comments FAQ