Pakistani currency has reversed almost all the gains it had achieved against the US dollar in the wake of the new political setup in the parliament, as it has cumulatively lost 3% (Rs5.42) in the past four days to a two-week low of Rs186.92 per dollar in the inter-bank market on Thursday.
At present, the currency is just 0.64% (Rs1.21) away from the all-time low of Rs188.18 hit two weeks ago on April 7 in the backdrop of the then political instability amid ouster of the PTI government.
“Pakistani currency returned to downward trend mainly due to a notable delay in receipt of $2.5 billion to Pakistan from China on account of rollover of a loan and emergence of harsh conditions from IMF to resume its $6 billion loan programme,” AKD Securities CEO Farid Alam said while talking to The Express Tribune.
Alone on Thursday, the Pakistani currency dropped 0.56% (Rs1.05) to Rs186.92 per dollar, according to State Bank of Pakistan’s (SBP) data.
Earlier, the currency had regained 3.5% (Rs6.63) to Rs181.55 per dollar in seven successive working days (April 8-16) after PML-N led coalition government came into power in the centre.
Alam hoped that Pakistan would get some clarity by Monday or Tuesday on whether the IMF would keep its conditions tight to resume the loan programme or it would soften its conditions, as the economic team has reached Washington to hold formal talks for seventh review of the economy under the programme.
“The clarity (on IMF programme) would give a direction to rupee.”
He hoped that the rupee would break the current losing streak and partially regain its lost value somewhere between Rs180-185 to a dollar soon. The rupee may also gain strength as soon as the new government realises that the award of subsidy on power tariff and petroleum products by PTI government was a mistake and withdraw the subsidy to fix the mistake.
The government should gradually withdraw the subsidy in phases instead fully passing on the massive hike in international oil prices to local consumers in one-go, he said.
“The removal of the subsidy (or passing on the hike in international oil price to local consumers) would reduce demand for petroleum products and cut the country’s high energy import bill. This would conserve the fast depleting foreign exchange reserves and dismiss unnecessary pressure on rupee against the greenback.”
The price of international oil has shot to around $110 per barrel these days, which has doubled Pakistan energy import bill to around $15 billion in the first nine-month of current fiscal year 2022 compared to the same period last year.
Rupee-dollar parity is not only an economic issue at present rather it has become a political issue as well. “The political euphoria had helped rupee to regain 3.5% after Shahbaz Sharif became the new prime minister of Pakistan earlier in the ongoing month of April.”
The return of volatility in rupee at present suggests a level of mistrust on the new government.
The new government should take measures to return rupee to around Rs180 and let it consolidate there. Later, it may allow the currency to gradually depreciate to Rs185, he said.
Earlier, the previous government of PML-N (2008-2013) demonstrated that rupee can hold strength against the US dollar with partial interventions.
The central bank should supply dollars into the inter-bank market when demand for the foreign currency stands high and it should buy dollars from the market when supply is high. Earlier, the strategy helped the central bank to maintain the country’s foreign exchange reserves stable.
Letting rupee lose to Rs200 would not help increasing the country’s export earnings. “Pakistan’s exports are also heavily dependent on imports which become costlier after every depreciation in the rupee,” he said.
Pakistan’s foreign exchange reserves hovers around two-year low below $11 billion at present. The successful seventh review of the domestic economy under the IMF loan programme would help receipt of $1 billion tranche from the global fund.
The resumption of the loan programme would allow the government to raise more financing from foreign financial markets.
The withdrawal of subsidy on power and petroleum products would also help authorities concerned to reduce unnecessary pressure in the economy.
Published in The Express Tribune, April 22nd, 2022.