Amidst interest rate hike, UAE dirham records historic high against Pakistani rupee.
On Thursday, the Pakistani rupee experienced a sharp decline, reaching an all-time low against the US dollar due to political and economic uncertainty caused by the delay in International Monetary Fund (IMF) funds. The rupee’s value dropped by 6.66% or 18.98, reaching 285.09 (77.68 against the dirham) in the interbank market, while it crossed the 290-barrier against the greenback (79.01 versus the dirham) for the first time and approached the 300-mark. The State Bank of Pakistan (SBP) data indicates that it closed at 266.11 against the greenback (72.50 versus the dirham) a day earlier.
Analysts and market experts considered the rupee’s depreciation as part of a market correction, as the IMF demanded that the significant gap in rates between the open and interbank market be eliminated. Investor sentiment was also affected by the economic uncertainty caused by the delay in IMF funds. They stated that the current rate is too high and should not have increased by that much, attributing the decline to the delay in the agreement with IMF and the significant gap between interbank and open market rates.
Zafar Paracha, Secretary General of the Exchange Companies Association of Pakistan, expressed concern over the decline and attributed it to the delay in the agreement with the IMF and the significant gap between interbank and open market rates. On Tuesday, Moody’s downgraded Pakistan’s local and foreign currency issue and senior unsecured debt ratings from Caa1 to Caa3.
The decline of the Pakistani rupee is a cause of concern for the country’s economy, as it increases the cost of imports and inflation, leading to a decrease in consumer purchasing power. Pakistan’s imports are higher than exports, and the decline in the rupee’s value would lead to a further increase in the trade deficit, adversely affecting the economy.
The IMF loan program is vital for Pakistan’s economic stability, as it provides financial assistance to stabilize the country’s foreign exchange reserves and balance of payments, which have been affected by the Covid-19 pandemic. Pakistan has received a total of $2.8 billion under the IMF program since it was approved in April 2020, and the country was expecting to receive the next tranche of $450 million in the current quarter.
However, the IMF’s recent demands for reforms have delayed the release of the next tranche of funds. The IMF has demanded that Pakistan address issues such as increasing electricity tariffs and taxation reform to improve the country’s fiscal deficit, which has worsened due to the pandemic. The delay in the agreement with the IMF and the subsequent decline of the Pakistani rupee have raised concerns about the country’s economic stability.
The Pakistani government has taken several measures to stabilize the economy, such as increasing taxes, reducing subsidies, and devaluing the rupee. However, these measures have not been sufficient to address the country’s economic challenges, and further reforms are required.
The decline of the Pakistani rupee is a cause for concern for the country’s economy, and the delay in IMF funds and demands for reforms have added to the economic uncertainty. The government needs to take urgent measures to address the economic challenges and improve the country’s fiscal deficit to ensure economic stability.
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