KARACHI: In line with market expectations, Pakistani currency fell and hit a new all-time low of Rs152.90 to the US dollar in the inter-bank market on Thursday apparently due to the mounting international payment pressure coming from depleting foreign currency reserves. With a fresh drop of Rs1.34, the rupee has cumulatively weakened by Rs4.98, or 3.36%, since June 3 – the last working day before the long Eid and weekly holidays.
“(Apparently) the mounting import payment and foreign debt repayment pressures have led to the rupee’s plunge,” Next Capital Managing Director Muzammil Aslam said while talking to The Express Tribune.
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A long list of import orders – which could not be processed by banks due to the Eid and weekly holidays from June 4 to 9 – created higher demand for dollars in the inter-bank market, he said.
Secondly, Pakistan is scheduled to make most of the external debt repayment and interest payment at the end of June. “These two developments have created massive demand for dollars at a time when the country’s foreign currency reserves are depleting consistently,” he said.
The State Bank of Pakistan (SBP) reported on Thursday “during the week ended June 3, 2019, the SBP’s reserves decreased by $55 million to $7,807.2 million due to payments on account of external debt servicing.”
The reserves stand insufficient to cover even two months of import payments. On an average, Pakistan has made import payments worth $4.5 billion a month over the past 10 months. Apart from the drop in the reserves, market talk suggests the PTI government will allow the rupee to depreciate to Rs160-165 to the greenback under the International Monetary Fund’s (IMF) condition for a bailout package of $6 billion.
High government officials have, however, denied this time and again and have stated no level has been agreed for rupee depreciation. However, the government will end state control of the rupee-dollar exchange rate and let market forces determine the rate.
Adviser to PM on Finance Dr Abdul Hafeez Shaikh said at the post-budget press conference on Wednesday (June 12) that the IMF Executive Board would approve the loan in two to four weeks.
Taurus Securities analyst Mustafa Mustansir said that heavy tax-loaded budget has made market participants panic as the government has announced withdrawing zero-rated tax incentive from the five main export sectors including textile, leather, carpet, sports and surgical goods. Accordingly, the government has imposed 17% general sales tax on the five zero-rated sectors. This may further deteriorate Pakistan’s exports, which have already remained sluggish for past several years due to lack of planning, he said.
The government has announced narrowing down current account deficit (CAD) to $7 billion in next fiscal year compared to estimated $12 billion in the outgoing year.
“However, the government did not announce concrete measures in the budget as to how it would contain the deficit,” he said. “The situation has created panic-like situation in the inter-bank market and mounted pressure on the rupee,” he said.
Gold hit all-time high
In a domino effect of the rupee depreciation, the imported commodity gold surged Rs600 per tola (11.66 grams) to a record high of Rs73,200 “mainly due to rupee depreciation,” All Sindh Saraf and Jewellers Association’s (ASSJA) office-bearer said.
Contrary to this, the precious metal recorded an uptick of only $1 per ounce (31.10 grams) to $1,337 in the international markets, he said.
Published in The Express Tribune, June 14th, 2019.