KARACHI: Pakistan’s currency on Monday dropped 2.61 percent or 7 rupees to a new record low of 269.63 to the dollar, making it Asia’s worst performer.
The currency’s drop comes as the government permitted the rupee to be more determined by the market forces, one of the requirements stated by the IMF for restarting the bailout package.
With the cash-strapped country’s economy in disarray, an IMF mission is expected to arrive in Pakistan on Tuesday (today) to discuss the ninth review of the country’s current funding programme, which has gotten stuck. The governmentincreased fuel prices ahead of the IMF team’s visit for a review of the loan following months of delays on the next loan tranche. The authorities are also expected to impose new taxes and think about ending power subsidies in order to meet the demands of the IMF.
Since a cap on the currency was lifted, the rupee has been falling in order to shift to a market-driven exchange rate. The local currency has lost 38.74 rupees, or 14.37 percent, overall during the past three interbank trading sessions.
The currency fell by 2.23 percent or 6 rupees to close at 275 per dollar in the open market, according to the rates provided by the Exchange Companies Association of Pakistan.
The Bangladeshi currency, which has also been among the worst performers after the rupee, fell by 0.1 percent day-on-day to close at 105.81 on January 30. Against the dollar, the Sri Lankan rupee decreased 0.7 percent to 366.83, according to data compiled by Topline Research.
The rupee has been the region’s worst-performing currency so far this year, slumping 16 percent. This compares with a fall of 2.5 percent in the Bangladeshi taka, 0.1 percent in the Sri Lankan rupee, and 0.7 percent in the Vietnamese dong.
However, analysts remain optimistic about the currency and predict that it will see some correction. “PKR will soon stabilise. It all depends on the IMF team’s visit and their reaction. We are hearing that exports have withheld billions of dollars that may also come in,” said Mohammed Sohail, the CEO of Karachi-based brokerage firm, Topline Securities.
The crisis-hit country is dealing with a serious balance of payments crisis and has just about three weeks’ worth of import coverage in foreign exchange reserves. Pakistan is scrambling to secure foreign financing to avoid default.
As of January 20, the foreign exchange reserves of the central bank stood at $3.7 billion. In a note on Saturday, analysts at Tresmark noted that the market will struggle to go above 270 in the short term, correcting to 265 levels, if there is no negative news on the IMF or the political front. But traders will keep a close watch on depleting reserves which went below $10 billion for the first time in years.
If all works out, IMF inflows might start as early as mid-February. Additionally, a staff-level deal with the IMF will probably open the door for larger inflows from allies and multilateral agencies.
The exporters have drawn more loans even though export activity was low. This suggests that exporters borrowed in the local currency (at high rates) but did not bring in their export proceeds. Analysts estimate this figure to be around $2.5 billion. Now having a windfall they may not wait for the rupee to depreciate further in a race to pay back their high-interest money and to quickly procure raw materials before the prices jump up, according to Tresmark.
Banks began calling clients (mainly exporters) to partially settle their backlog of imports in the context of this change in equilibrium. Market estimates of the backlog exceed $3 billion, with at least $1.7 billion in imports that are urgent or important, it added.
