KARACHI: At midday on Monday, the Pakistani rupee crosses 270 to the US dollar for the first time in the interbank market as the government gave up control of the exchange rate to comply with IMF demands.
On the third day of freefall, the rupee underwent a fresh devaluation of Rs7.50 (or 2.77%) to a new all-time low of Rs270.10 versus the US dollar.
According to the central bank, the local currency had a Friday closing value of Rs262.60.
In all, it has decreased by Rs39.21 (or 14.50%) in the three days since Wednesday’s closure, which was at Rs230.89.
Yousuf Rahman, the head of research at KASB Securities, stated that “the large discrepancy between demand and supply of the greenback in the system prompted importers to pay Rs270 per dollar.”
The rupee was anticipated to “test the level of 270,” he continued. It may continue its downward trend. The local rupee is anticipated to stabilise this week at about Rs265, he insisted.
Due to the poor availability of dollars in the economy, the gap between the demand and supply of dollars has grown dramatically, he said.
The nation’s foreign exchange reserves have dropped to a concerning $3.7 billion level. For the import need of three weeks, they hardly suffice. In August 2021, the reserves were valued at $20 billion.
“Pakistan’s Struggle to Regain IMF Loan and Avoid Default”
Pakistan, on the other hand, needs to pay for its imports at a rate of about $5 billion each month. In addition, the country must pay back $7 billion in foreign debt within the next five months (Feb-Jun 2023).
For the purpose of regaining the IMF’s $7 billion loan package, the government reestablished the market-based currency rate system.
The resurrection of the program is expected to have a positive impact. Global and bilateral creditors are likely to extend new loans totaling $3–4 billion in the near future. This will occur in the coming few months.
However, The government would be able to overcome the lack of US dollars in the system and, ideally, narrowly avoid defaulting on foreign obligations with the aid of the new debt inflows.