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KARACHI: Pakistan has devalued its national currency, the Pakistani Rupee (PKR), for the fifth time since December 2017, as the country faces mounting pressure over external payments amid diminishing foreign-exchange reserves.
“Today, the exchange rate in the interbank market closed at PKR 133.64 to the US dollar, against the previous day’s closing of PKR 124.27 to the US dollar,” the State Bank of Pakistan said on October 9. “This movement broadly reflects the current-account dynamics and also the demand-supply gap in the foreign-exchange market.
“Although the current-account deficit narrowed in August 2018, a consistent increase in the oil-import bill, on account of rising international oil prices, has exerted pressure in the foreign-exchange market.”
Pakistan has, after much delay, finally decided to approach the International Monetary Fund for help, but the rupee is expected to remain under further pressure this week, with currency experts predicting that a sixth round of devaluation is inevitable as a prerequisite for IMF assistance.
“The rupee was overvalued as compared with dollar and the correction was overdue,” said Zeeshan Afzal, executive director of research at Insight Securities. “It is no coincidence that the rupee devaluation has come at a time when Pakistan has formally announced an approach to the IMF for a bailout package.”
Pakistani Finance Minister Asad Umar on Monday announced the country will approach the IMF for assistance, after foreign-exchange reserves declined to $8.4 billion by September 28.
Information Minister Fawad Chaudhry on Tuesday said turning to the IMF was a “difficult decision.”
He told guests at an event in Islamabad: “The country’s remaining reserves can only serve for one month and 16 days, while the country needs $8 billion for debt servicing. We need $28 billion to run the country for this year.”
However, experts believe that the country’s growth will slow after an IMF intervention.
“The IMF program will come with specific external, fiscal and monetary measures that are likely to slow gross domestic product growth to about 4 to 4.5 percent,” said Saad Hashmey, an analyst at Topline Securities.
The Pakistan stock market reacted strongly to the government’s decision to opt for an IMF program for stabilization and economic recovery, with the benchmark KSE 100 index recovering 606 points.
“Oil and banking stocks outperformed on surging global oil prices and higher banking spreads,” said Ahsan Mehanti, chief executive of Arif Habib Group. “The auto, steel and cement sectors underperformed on a weak earnings outlook, record rupee depreciation and the likely curtailment of China-Pakistan Economic Corridor projects. Late-session buying on likely economic stability post-IMF bailout played a catalyst role in a bullish close.”
This is the fifth round of rupee devaluations since December last year. The government has devalued the currency from PKR 105 against the dollar on December 8, 2017, to PKR 135 on October 09, 2018, making it 27 percent weaker.
“We expect that the currency will further depreciate by up to 5 percent before the country goes to the IMF program,” Afzal said.
Fahad Irfan, head of research at Alfalah Securities, said: “We see the rupee further depreciating to PKR 140 against (the dollar) because the pace of depletion of foreign-exchange reserves is accelerating.”
that the rupee was not adjusted with a basket of other currencies when peer countries took corrective measures, which is why it remains under pressure.
As the devaluation is expected to increase inflationary pressure, analysts expect the State Bank of Pakistan will increase its interest rate from the current 8.5 percent in the next monetary policy announcement.
Junaid Esmail Makda, president of the Karachi Chamber of Commerce and Industry, expressed deep concerns about the serious devaluation of rupee against dollar, saying it will have a devastating effect on all segments of society, particularly middle- and lower-income groups, with the poor likely to particularly suffer as a result of rising inflation.
The central banks said it will continue to closely monitor foreign-exchange markets and stands ready to ensure stability in the financial markets and curb the emergence of speculative pressures.