The Pakistani rupee sank sharply by Rs18.98 against the dollar as trading closed on Thursday, with the local currency reaching a historic high of Rs285.09 at close, according to the State Bank of Pakistan.
Analysts attributed the record drop — which is 6.66pc — to the government’s impasse with the International Monetary Fund (IMF).
‘Currency crackdowns only strengthened grey market’
Zafar Paracha, secretary general of the Exchange Companies Association of Pakistan (ECAP), explained to Dawn.com that the IMF had asked Pakistan to trade the dollar at the current Afghan trade rate.
“In other words, they had said our actual rate should be as in the grey market rate, not the interbank rate or the open market. They are right as the availability and trade of dollars taking place right now is only in the grey market,” he added.
He said that the government imposed restrictions on foreign exchange, as a result, the trade shifted to the grey market.
The dollar does not come or go because of the many restrictions they have imposed on foreign exchange companies on its buying and selling, he said.
He said this is despite the government’s crackdowns [on the grey market]. Paracha called for a revamp in the policies, saying conducting crackdowns would not help.
“Inadvertently, we have greatly supported the grey market because of our policies. The IMF can also see this so they have said to bring our rate — of the rupee and dollar — to that point,” he added.
Meanwhile, Topline Securities chief executive Mohammed Sohail told Dawn.com that the fresh plunge was mainly because of uncertainty in the currency market regarding the delay in funding from the IMF.
‘An IMF condition’
Tresmark Head of Strategic Planning Komal Mansoor said: “The IMF demanded a 20pc reduction in the rupee’s value before the new agreement that was fulfilled.”
Saying she hoped the dollar would eventually settle between Rs278-Rs280. “If it gets above this, then the State Bank would intervene.”
Mansoor said that was the reason behind the current surge in the dollar rate. “Our expectation is the market would set below Rs280 and the rupee would not depreciate further.”
KCCI urges SBP to ‘play its role’
In a statement released later in the day, Karachi Chamber of Commerce and Industry (KCCI) President Mohammed Tariq Yousuf urged the State Bank to play its role and devise an effective strategy to bring the value of dollar down.
He said the devaluation of the rupee was having a deeply negative impact on the economy, businesses and inflation.
“Although the experts are attributing the rupee devaluation to monetary policy, the SBP — being the regulator — has to play a role to find out the causes of abnormal upsurge and bring it down at any cost,” the statement quoted Yousuf as saying.
He went on to say that the rising dollar against the rupee would keep on creating numerous problems for the economy, as it was already facing a lot of challenges due to widening current and fiscal deficits.
Yousuf said that the appreciating dollar was increasing the cost of doing business, making Pakistani goods uncompetitive in the export markets and unaffordable for the common man at the local markets.
“Due to lack of effective price control mechanism, an abnormal upsurge has been witnessed in the prices of almost all the commodities of household usage which have to be controlled to ease the already overburdened and miserable life of the inflation stricken common man,” the KCCI president added.
He further feared that the economic crises would push the economy to a point of “no return” and may even put Pakistan’s survival at stake.
The currency has been sliding in recent days after delays in a deal between Pakistan and the International Monetary Fund, which they have been negotiating since early last month.
A move to a market-based currency exchange rate regime is one of a list of actions the IMF wants Pakistan to complete to clear its 9th review, which if approved by its board would release a funding tranche of over $1 billion that has been delayed since late last year over a policy framework.
The prerequisites by the lender are aimed at ensuring Pakistan shrinks its fiscal deficit ahead of its annual budget around June.
Pakistan has already taken most of the other prior actions, which included hikes in fuel and energy tariffs, the withdrawal of subsidies in export and power sectors, and generating more revenues through new taxation in a supplementary budget.
The fiscal adjustments demanded by any deal, however, are likely to further fuel record high inflation, which hit 31.5pc year-on-year in February.
Bilateral and multilateral external financing commitments and raising policy rates are two other demands by the IMF that Pakistan is yet to meet.
Longtime ally China is the only country that has refinanced $700 million to Islamabad.
Pakistan’s central bank is widely expected to raise its key policy rate by 200 basis points in an off-cycle meeting on Thursday, a Reuters poll showed.
Additional input by Reuters