Pakistani Rupee’s Downfall Continues As IMF Loan Deal Makes Administration Tough For Imran Khan-led Government

Pakistani rupee

Pakistan is having a tough time combating the challenges it is facing internationally as well as on its home ground. First of all China’s decision to lift its stand to oppose Azhar Mahmood as the terrorist gave a major jolt to the terrorist camps in the country. It proved once again that Pakistan is indeed supporting terrorists and terrorism in the UNO.

More Setbacks For Pakistani Government

And now its already distressed economy is facing more setbacks. Its rupee stumbled further after the Imran Khan-led Pakistan government agreed in principle for a loan of $6 billion from the International Monetary Fund (IMF).

The loan regulations are expected to set up tough conditions on the Pakistani administration. As a result, the rupee slid by 3.6% a few days ago and closed at 150 in the open market and at 146.2 against the American dollar in the interbank market.

The chief economist and research director at Topline Securities in Karachi, Saad Hashemy stated, “market-based exchange rate mechanism, which will see limited intervention by the central bank now.”

The stock market of Pakistan also faced the brunt of this downfall with its benchmark KSE 100 index going down by 2.4%.

The exact conditions related to the IMF accord is still a mystery. But one thing is clear that this Staff-Level deal which needs approval from the Washington-based Fund’s board says that for the benefit of the financial sector, the exchange rate will have to be market-determined.

Less Support From Central Bank A Major Concern  

The market-determined exchange rate indicates that the administration will get less support from the Central Bank. It can be a cause of concern for the government. At present, the Central Bank offers support to the Pakistani rupee in a de facto managed float system.

In its statement made almost a week ago, the Central Bank stated, “The sharp fall in the rupee reflects demand and supply conditions in the foreign exchange market.” The apex bank of Pakistan believes that it will contribute towards correcting the market imbalances.

But this drop in the rupee value will create a big political problem for Imran Khan and his government. His party came into power on the promise of building a new social welfare system. The Khan-led party also vowed not to opt for a bailout for the 13th time since the 1980s.

To halter the steep downside of the growth rate, the Pakistan government at the center will have no other option but to hike taxes or impose heavy spending cuts. These steps will be necessary for reducing the overwhelming budget deficit.

Weaker Rupee Can Lead To Inflation  

Times are difficult as the household budgets in the country are already squeezed with even basic grocery prices escalating beyond common man’s reach. Milk is priced at Rs. 190/liter, mutton-Rs.1000/kg, and banana -Rs. 190/kg. With the Ramzan celebrations around the corner, the prices are expected to rise further.

Economists believe that the Central Bank has been wasting billions defending the overvalued rupee. They believe that the weaker currency may soon lead to inflation which is already more than 8%. The fuel and power prices have been hit badly.

The Central Bank has already announced that its foreign exchange reserves plummeted $138 million.

Worst Is Yet To Come

Analysts predict that the worst is yet to come for Pakistan. The hopes of Pakistan’s prime minister to become self-sufficient in oil production were dashed as offshore drilling in Kekra- 1 had to be stopped as it could not yield any result. It indeed has been a big disappointment for Imran Khan government. It was expecting an oil discovery in the Arabian Sea and had almost started celebrating the expected discovery.  

Since it came to power in August 2018, the Imran Khan government has been facing a tough economic situation. But the rupee of Pakistan has slid so low in the last few days that currently, it is the worst performing currency in the Asian continent.

Analysts have predicted that the Pakistani rupee will go through yet another devaluation bout in coming days when the country receives its first IMF loan credit tranche.