The Pakistani rupee has declined to a record low of Rs 255.43 against the value of the dollar in the interbank market on Thursday, sliding 10 percent from yesterday’s value. The decrease in the valuation came after the removal of the unofficial price cap on the exchange rate.
The decrease in the value of the Pakistani rupee has been considered the largest single-day decrease since 1999. During 1999, the drop was attributed to the installation of the new rate of exchange.
The government has relaxed the value of the currency to avail loans from the International Monetary Fund to rescue the Pakistani economy from the financial turmoil. The evidence has been received from Bloomberg.
The countries undergoing financial turmoil have to meet various conditions from an IMF bailout: The dollar-devoid economy seeking help from the International Monetary Fund has been undergoing increasing pressure to enable the market forces to play a major role in determining the rate of exchange. Pakistani managed to gain a bailout in the previous year, but the IMF has delayed the release of further funds.
The funds account for 6.7 billion USD. The country is struggling to maintain its economy amidst a power supply crisis, shortage of dollars, high inflation rates, and political tensions.
Saad bin Naseer, a financial analyst, has stated that Pakistan can only complete the ninth review of the IMF bailout by adhering to a market-based exchange rate.
Despite the collapsing Pakistani economy, Pakistani stocks have performed well. The benchmark KSE-100 index has increased by 2.4 percent, it has risen to the maximum within five months. Exports have pointed out the decision as Pakistanis welcoming the decision.
It has been predicted that the value of the currency will decline further. The value of the Pakistani rupee may depreciate and reach a value of 260 a dollar by the end of June. It has been stated by the Head of Research at JS Global Capital Ltd.
The nation is witnessing pressure on the dollar reserves, and they have not received any fresh inflows that would increase the valuation of the reserves.
The acute dollar shortage has caused the dollar to be exchanged in the black markets at the price higher than 10 percent of its advertised rates.
A trembling situation for Pakistan as its economy contiues to collapse:
Pakistan’s economy was not doing well since the time floods approached in 2022. It pushed the country to the brink. The IMF has provided an extended fund facility in 2019 to sustain the country’s economy. However, floods followed by many other circumstantial factors have pushed Pakistan to the brink.
Thus, IMF has declared that it will not fund Pakistan further if it does not bring reforms in the following segments: increasing energy rates, imposing more taxes, end control over the exchange rates, which has not been accepted politically in the country.
As stated by valid sources, the forex reserves have reached a record of 4.56 billion USD, which can cover three weeks of imports. It can be a damaging situation for Pakistan which relies mainly on imports. The decline in the forex reserves is mainly because Pakistan had to pay 1 billion in commercial loans to the two UAE banks.
Furthermore, the fiscal deficit has widened by 43 based on the Pakistan Revenue in the July-September quarter of 2023. It was stated that the country’s budget deficit was 1 percent of the GDP during the first quarter of the fiscal year. It is compared to 0.7 percent in the present quarter of the fiscal year.
The price for the essential items has increased with the Sensitive Price Indicator to rise by 32 percent year on year for the week ending on 19 January 2023. The data has been collected by the country’s revenue. The experts have predicted that there will be a 100 basis points increase, which would bring the benchmark rate to 17 percent.
The economy is collapsing. Despite the plummeting value of its currency, the government has failed to get a loan from the IMF after it did not meet the conditions that the prices of fuels must be increased further. The IMF has been pushing Pakistan into a deeper mess, delaying its loan approval.
edited and proofread by nikita sharma
