The Pakistani rupee and the US dollar disparity will widen further as local currency is likely to plunge to Rs92 versus dollar by the end of calendar year on the dictation of IMF. Financial experts believe that local currency will fall as low as Rs92 against the greenback by December 2011 as per the condition of the International Monetary Fund, which wants Pak rupee to lower its widening gap of inflation with its value.
“One of the conditions agreed by Pakistan authorities for IMF’s $11 billion bailout programme was to narrow its gap of rupee’s value and inflation level.
The rupee is historically pegged with the US currency, hence to maintain the dollar-rupee parity, it is must to equalise the inflation difference of the dollar and rupee,” said the National Bank of Pakistan ex-president Abu Saeed Islahi.
Talking to The Nation, he said that presently the rupee’s rate of inflation is about 15 percent while the dollar’s rate of inflation is just 4 percent. IMF’s conditionality is also to lower the 11 percent disparity of inflation between rupee and the dollar to fulfil the money market worldwide rule, he added. On queries of its supply and demand mechanism and govt possible intervene to stable the local currency, he observed that it is the responsibility of the central bank to keep vigil on money matters in the country, maintaining the value of its currency.
Citing an example, he said the Swiss Bank has recently lowered its currency value by 8 percent despite the fact that its currency demand is so high. The decision was made by the Bank to support its export, he added.
Tariq Jamil, a financial expert and former SVP HBL observed that IMF has flayed Pakistan government for its inconsistent implementation of fiscal reforms and has held back the sixth tranche of bailout programme since August last year, halting a major source of dollar inflow. As a result, the rupee plunged further due to high demand of dollar, he added.
He pointed out that officials of IMF and Pakistan were due to meet last month but meeting was delayed and no new date announced.
On a question he said that some support came from remittances as it rose 38.57 percent to $1.1 billion in July, while annual figure crossed $12 billion. “Remittances are the only hope to stable the rupee, otherwise the currency would have fallen further,” he maintained.
Dr Salman Shah, the former Finance Adviser to PM, said that higher payments for oil imports and depressing sentiments engulfing country’s economy and has forced rupee to touch a record low. This downward pressure will likely to continue, he added.
He expected that currency would remain under pressure as payments for oil imports to the foreign companies in the form of dollar are done mostly in July and Sept. He also blamed halted payments from a bailout package by IMF for hitting rupee.
Dr Salman stated that devastating floods of last year, costly war against Al-Qaeda, massive energy crisis, high inflation of over 15 percent, the slump in FDI inflows and plummeting local bourses, all are the contributors to rupee fall.
A senior analyst with Invest Cap brokerage house Farhan Bashir observed that Pak rupee slid to three-month low against greenback and other hard currencies by up to five-month, mainly due to week economic conditions. He said rupee, on Sept 6, ended at 87.5 to dollar while it traded at Rs87.30 on Aug 29 during Eidul Fitr holidays. He informed that rupee lost 39.68 per cent value against dollar in around 38 months of the PPP government. According to him, bad governance is the major cause of week economy, leading to depreciation in local currency. He said that our currency declined from Rs62.58 in April 2008 to now Rs87.5. The reason is that economy’s performance is dull as large scale manufacturing has risen to just 1.14 percent in 2011, compared to 4.84 percent in 2010.
He said that GDP growth has come down to about 2 per cent from projected 4.5 per cent. Imports have adopted continuously the rising trend $3.69 billion from $3.24b, resulting into a huge trade deficit. According to him, FDI inflows have plummeted to $90.8m from $109.8m.
These are the major hurdles, which make a full picture of our dull and weak economy, leading to a constant depreciation in local currency. Asif Baig, chief executive ABM Securities, viewed that the market pessimism left shares almost flat despite the fact that state-owned institutions stepped up to accumulate stocks at lower levels.
He attributed the continuous decline of the rupee versus all other currencies to the ongoing hundreds of target killings in Karachi and uncertain business and political situation across the country.
He said that since July 1, the rupee has lost 1.54 per cent value in exchange rate against dollar in inter-bank market.
KCCI President Saeed Shafiq said that uncertain political situation, especially, blood bath in Karachi for the last one month has raised the demand for dollars and this was causing a significant decline in value of the rupee, he said.
Business community and traders suggested government to stop printing new notes, take measures to control soaring inflation, reduce the mark-up rate, eliminate hundi system to attract remittances and adopt austerity measures to stabilise rupee.